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Cablegate: Energy and Mining Highlights - February 2007

VZCZCXRO3865
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #0724/01 0721222
ZNR UUUUU ZZH
R 131222Z MAR 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 3825
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0400
RUEHBY/AMEMBASSY CANBERRA 0524
RUEHBJ/AMEMBASSY BEIJING 3984

UNCLAS SECTION 01 OF 03 JAKARTA 000724

SIPDIS

DEPT FOR EAP/MTS AND EB/ESC/IEC
DEPT PASS OPIC, EXIM, TDA
DOE FOR CUTLER/PI-32 AND GILLESPIE/PI-32
COMMERCE FOR 4430/BERLINGUETTE

SIPDIS

E.O. 12958: N/A
TAGS: EPET ENRG EINV PREL ID
SUBJECT: ENERGY AND MINING HIGHLIGHTS - February 2007

1. Summary. Pertamina delayed naming the tender winners for partial
equity in its stake of 12 oil and gas blocks on February 27.
Pertamina also announced it will work with foreign companies to
develop biodiesel technology. The GOI said 12 of 20 oil and gas
blocks it offered for the latest tender round attracted bidders.
State-owned electricity firm PLN said on February 24 that it would
extend a High Speed Diesel fuel supply tender deadline. On February
27, the GOI questioned the capacity of four of five coal suppliers
for the electricity fast track program. The fast track program
chief also announced delays for several power projects. State gas
company PGN increased business activity in South Sumatra in
anticipation of a new pipeline coming online. On February 27, the
GOI rebuffed gold mining company Newmont's request to delay its
required divestment plan. The GOI approved an export permit for the
state-owned tin mining company PT Timah on February 23. The GOI
said on February 22 it intends to require mining firms to make up
front compensation payments for any potential enviromental damage.
Local coal miner PT Bumi Resources said its profits soared 66%
during 2006. This report uses an exchange rate of Rp 9125 per US
dollar. End Summary.

Pertamina Delays Partial Equity Sales
-------------------------------------

2. State petroleum company Pertamina on February 27 announced a
delay until mid-March in naming the tender winners for partial
equity in its stake of 12 oil and gas blocks. Upstream Director
Sukusen Soemarinda told press that the tender winners would receive
15% of Pertamina's 40% share for the 12 blocks: Bangkudulis (East
Kalimantan); Ibul Tenggara (South Sumatra); Tebat Agung (South
Sumatra); Perlak (South Sumatra); Tanjung Tiga Timur (South
Sumatra); Sungai Lilin (South Sumatra); Rayu (South Sumatra);
Sambidoyong (West Java); Wiriagar (Irian Jaya); Kamundan (Papua);
Kendal (South Sumatra); and Suci (East Java). He attributed the
delay to unspecified complications in the tender evaluation
process.

Pertamina Announces Biofuels Partnership
----------------------------------------

3. Pertamina officials told journalists on February 23 that they
will work with companies from Brazil, the United States, Italy, and
Germany to develop Indonesia's biodiesel industry. They said they
plan to concentrate their cooperation in developing hydrogenation
technology for refineries in Balikpapan, Dumai and Balongan.
Pertamina said it will require technological advances in the
refining process to make biodiesel economically feasible due to the
current high market price for biodiesel feed stock. According to
Pertamina, it has brought in experts from Brazil's Petrobas to
produce biodiesel on a trial basis.

12 Oil and Gas Blocks Attract Bidders
-------------------------------------

4. On Februrary 16, Director General of Oil and Gas Luluk Sumiarso
told reporters that 12 of the 20 oil and gas blocks the GOI offered
for the latest tender round attracted bidders. The 12 blocks are
South East Mahakam(Kalimantan); West Air Komering (Sumatra); Karama
(Makassar Strait); Mandar (Makassar Strait); Sageri (Makassar
Strait); Ujung Kulon (West Java); Cucut (Natuna); Tuna (Natuna);
Cakalang (Natuna); Baronang (Natuna); Enrekang (West Sulawesi) and
Lampung 1 (Lampung). Companies that participated in bidding
included long-time players in Indonesia such as France's Total, UK's
Premier Oil, Malaysia's Petronas, U.S.'s Esso Exploration, Canada's
Talisman, Pertamina, U.S.'s Anadarko, and Norway's Statoil ASA, in
addition to possible new entrants. Sumiarso said the GOI plans to
offer about 40 blocks for tender during 2007.

PLN Extends Fuel Supply Deadline
--------------------------------

5. PLN said on February 24 that it would extend the tender deadline
for those companies interested in supplying High Speed Diesel (HSD)
fuel to the state electricity company during 2007. PLN Vice
Chairman Widayanto told press that bidders broached the request for
an extension on February 19. Widayanto added that Pertamina has
already passed the pre-qualification phase and is therefore not one
of the 46 companies to receive more time to prepare its bid. PLN
plans to announce the winners of the minimum one-year fuel supply
contracts by May 2007. Shell, BP, and Petronas have expressed
interest in joining the tender competition, according to press
reports and industry analysts. PLN spokesmen said the power company

JAKARTA 00000724 002 OF 003


needs to source fuel for multiple plants so several of the 46
competitiors may eventually win contracts. PLN said it is still
analyzing its fuel requirements for each of its power plants and was
therefore unsure of the total size of the tender. On February 8,
Pertamina said that the electricity company owes Pertamina Rp 13
trillion ($1.4 billion) in unpaid fuel bills.

6. Separately, stated-owned Bank Mandiri said on February 1 that the
bank will allocate Rp 3 trillion ($328 million) this year for loans
to finance construction of PLN power plants and conversion of their
diesel-fired power plants to coal. PLN Chief Commissioner Alhilal
Hamdi added that PLN will also issue bonds to finance its power
projects.

PLN Coal Supplies Questioned, Fast Track Program Delays
--------------------------------------------- ----------

7. On February 27, the Ministry of Energy and Mineral Resources
(MEMR) raised doubts about the capacity of four of five coal
producers for the GOI's electricity fast track program. Director of
Coal and Mineral Enterprises M.S. Marpaung told reporters that a
ministry study found that the four consortia lacked clarity on the
amount of proven reserves, have reserves that are located in
protected forests or that overlap with the mining areas of other
companies. Only PT Arutmin Indonesia has the clear capacity to
fulfill its commitment, according to Marpaung. In October 2006 PLN
signed letters of intent with five consortia to supply 21 million
tons per annum (MTPA) of low-rank coal to company's existing power
plants, as well as for proposed power projects scheduled to commence
operation in 2009 and 2010. PLN signed agreements with a consortia
including PT Arutmin Indonesia and Darma Henwa, both of which are
controlled by the family of Coordinating Minister Aburizal Bakrie,
to supply 10 MTPA. Jambi-based coal miner Titan Energi is to supply
3.5 MTPA. The consortium of Kasih Industri Indonesia and Senamas
Energindo will supply 4.5 MTPA. Baramutiara Prima is contracted to
supply 2.3 MTPA, while Surya Sakti Darma Kencana will provide 0.52
MTPA.

8. Separately on February 15, fast-track program chief Yogo Pratomo
said several of the 600 and 700 MW power plants planned for Java
would be delayed from their original target of August 2009 to
February 2010. He said that several of the smaller 300 and 400 MW
projects in Java, which had been scheduled to begin operations in
June 2009, will now come online in August 2009. Pratomo attributed
the delays to difficulties in the tendering process and contract
negotiations for the PLTU Suralaya, PLTU Paiton, PLTU Tanjung Awar,
PLTU Rembang, PLTU Indramayu and PLTU Labuhan projects.

PGN Seeks New Customers in West Java
------------------------------------

9. State gas company PGN President Director Sutikno on February 21
said that PGN seeks to add 100 West Java companies as new customers
as it nears completion of the first stage of the South Sumatra-West
Java (SSWJ) pipeline project. Sutikno said that 30 million cubic
feet per day (MMCFD) will begin flowing in March 2007. PGN will
raise the volume to 60 MMCFD in May 2007 with a goal of 250 MMCFD by
2008, he said. President Susilo Bambang Yudhoyono and Japanese
Prime Minister Shinzo Abe are scheduled to inaugurate the Bojonegoro
gas transmission station in April.

10. Separately PGN said it signed a memorandum of understanding
(MOU) on February 1 with the Muara Enim regency administration to
manage coal-bed methane (CBM) and natural gas in the South Sumatra
province. PGN said the close proximity of the SSWJ pipeline now
under contruction made the regency's CBM potential particularly
attractive. A PGN spokesman said South Sumatra potentially has one
trillion cubic feet of CBM, equivalent to 180 million barrels of
oil, if they can achieve a 60% recovery rate.

Newmont Divestment Delay Request Rebuffed
-----------------------------------------
11. According to press reports on February 27, an MEMR spokesman
rejected as "premature" a request by PT Newmont Nusa Tenggara (NTT)
to delay divestment of its 7% stake to the GOI, a move which must be
completed by March 2008. An NTT spokesman said the miner made the
request so that it can first complete the required sale of a 3%
stake, valued at $109 million, to the Nusa Tenggara provincial
administration and the West Sumbawa regency. Current NNT's
shareholders are Newmont Mining Corp with 45%, local company PT
Pukuafu Indah with 20%, and a consortium led by Japan's Sumitomo
holding 35%.

JAKARTA 00000724 003 OF 003


Timah Gets Tin Export License
-----------------------------

12. PT Timah President Director Thobrani Alwi said on February 23
that the GOI has approved a tin export permit for the state-owned
tin mining firm under new export rules. The new rules took effect
February 23 and include requirements that a GOI-appointed surveyor
verify the source of ore, as well as purity checks for ingots. A
trade ministry official said on February 23 that eight companies
including PT Timah sought to register as tin exporters. He added
that only PT Timah's permit has been approved with the remaining
ones still under review. Indonesia's Tin Industry Association,
which represents 22 smelters, had earlier warned on February 15 that
its members could lose as much as 60,000 tons of exports if the GOI
failed to grant permits. Industry analysts have predicted up to a
10% decline in global tin production as a result of the slowing of
supply from illegal smelters and PT Koba Tin. PT Koba Tin,
Indonesia's second largest tin miner and smelter, halted all
production on February 10 after three company directors were held by
police investigating illegal ore purchases. Global tin prices
reached 18-year highs during late 2006 and early 2007, trading well
above $12,000 per ton.

Miners To Pay Compensation Up Front
-----------------------------------

13. Forestry Minister Kaban said on February 22 the GOI intends to
require mining firms operating in plantation and protected forests
to make up front compensation payments for any potential
enviromental damage their actvities might cause. He said the GOI
will also revoke a mining company's lease, which is generally
renewable every five years, and rehabilitate the work area if the
GOI decides a firm has abandoned its site. Kaban said the new
policy will be put into effect through a ministry regulation issued
in line with the proposed new mining law, currently under
consideration in Parliament. Kaban said the amount of compensation
the GOI will require will be assessed on a case-by-case basis
depending on the amount of forest destroyed. Energy and Mineral
Resources Minister Purnomo said that an inter-ministerial team
coordinated by the Vice President will conduct the assessments to
avoid conflicts of interest.

Bumi Profit Surges on Higher Coal Production
--------------------------------------------

14. Local mining firm PT Bumi Resources said on February 27 that
its net profit increased 66% in 2006 to about $200 million from
about $123.3 million the previous year. The company attributed the
sharp rise to the surging coal production, which rose by 19% to 53.5
million tons during the year from about 45 million tons in 2005.
Their coal sale prices reached an average of about $40.80 per ton in
2006, compared to $40.12 in 2005. Bumi operates the two major coal
mining companies: Arutmin Indonesia and Kaltim Prima Coal (KPC),
both in East Kalimantan.

15. Separately, Bumi also said on February 19 said it will announce
in March the buyers of the 30% stake it has on offer in KPC and
Arutmin Indonesia. Only 6 of 13 companies passed the initial
selection process in January. The six will be conducting the final
stages of due diligence until February 28 before submitting their
bids. Press reports suggested on February 14 that the bidders are
valuing the 30% share at around $1.6 billion.

HEFFERN

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