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Cablegate: Energy Highlights-October/November 2006

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1. Summary. President Yudhoyono said Indonesia will honor
its existing LNG contracts during a November 27-29 state
visit to Japan. Vice President Jusuf Kalla said on November
25 that Indonesia will decide next year whether to renew
those contracts. On November 25, state gas company PGN
restored gas supplies in East Java, which were disrupted by
a November 22 pipeline explosion. State electricity company
PLN said the Java-Bali grid was short 560 MW of power during
November due to mechanical problems. The French energy firm
Total said on November 17 that it had boosted capital
expenditure by 33 percent for its Mahakam block. On October
16, the GOI temporarily rescinded import duties on upstream
oil and gas equipment. On November 28, local press reported
that Total plans to build 200 gas stations in Indonesia
commencing in 2008. State oil company Pertamina cut
unsubsidized fuel prices marginally for December. On
October 12, PLN sold USD 1 billion of bonds in the nation's
biggest overseas corporate debt offering since the 1997-98
financial crisis. A local company claimed on November 29
that it had found the world's largest geothermal steam well.
On November 30, Japan's Sumitomo announced plans to double
the capacity of its Tanjung Jati B power plant. PGN said on
November 17 that it had chosen a new President Director.
This report uses an exchange rate of Rp 9060/USD. End

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SBY Pledges to Honor Japanese Gas Contracts

2. On November 29 during a state visit to Japan, President
Susilo Bambang Yudhoyono said Indonesia will honor its
contracts for LNG exports to Japan. He did not make any
public commitment to extend the contracts, however. Six
Japanese firms are negotiating the renewal of LNG supply
contracts with state petroleum company Pertamina, which has
said it would reduce exports to Japan from 2010 to meet
growing domestic demand. Indonesia is the biggest LNG
supplier for Japan at 24 percent of total imports in 2005.
The Government of Japan continues to press for renewal of
the supply contracts which expire in 2011. President
Yudhoyono told a press conference, "Regarding the sales of
LNG, I want to stress that I respect contracts with Japan.
He added, "I want to continue cooperating to increase the
production of petroleum gas, which of course includes LNG,
to satisfy domestic demands while supplying resources
overseas." Japan also said it will increase technical
assistance to Indonesia in coal-to-liquid technology, energy
conservation, and nuclear safety.

LNG Contract Extensions To Be Decided in 2007

3. On the eve of President Yudhoyono's trip to Japan, Vice
President Jusuf Kalla told reporters on November 25 that
Indonesia will decide next year whether to renew contracts
to sell LNG to Japan. He said the decision will be based on
Indonesia's domestic demand and production. An 8.4 million
tons per year (TPY) contract with Japan expires in 2010 and
another contract for 3.6 million TPY ends in 2011. "We will
decide next year after we make a review on how much we need,
say for the next 10 years, and how much we can produce.
Then we will see whether we will extend or reduce depending
on our gas balance," Kalla said. GOI energy officials have
earlier said Indonesia might halve its Japanese LNG exports
to six million TPY when the contracts expire.

PGN's East Java Gas Supply Resumes

4. On November 25, state gas company PGN said it had
restored normal gas supplies to its industrial customers in
East Java, which were disrupted by the explosion of the East
Java Gas Pipeline (EJGP) in Porong Sidoarjo on November 22.
The 90 million cubic feet per day (MMCFD) flow resumed late
in the day but not before costing the company USD 6 million
in lost revenue, according to a spokesman.

Java-Bali Power Shortages During November

5. State electricity company PLN said that the Java-Bali
grid suffered power supply shortages of 560 MW due to

JAKARTA 00013446 002 OF 003

mechanical problems in several power plants during November.
Blackouts occurred in Surabaya, East Java due to lowered
supply from the Gresik combined cycle power plant, which had
to switch to oil generation following the explosion of gas
pipeline in Sidoardjo, East Java on November 22. Rolling
blackouts occurred in several parts of Java and Bali on
November 24 and 25 due to mechanical problems which reduced
power supply from Paiton's coal-fired Unit 8 and Suralaya's
coal-fired Unit 6. Paiton has been suffering from
mechanical downtime since November 7.
Tanjung Jati B's coal-fired power plant that commenced
operation last month also failed to operate at full output
due to a condenser malfunction. The Java-Bali grid has a
peak load capacity of 14,000 MW.

Total Indonesie Boosts Investment

6. French production sharing contractor Total EP Indonesie
said on November 17 that it had boosted capital expenditure
by 33 percent to develop the Mahakam block in East
Kalimantan. Total will spend USD 1.6 billion in 2007 up
from USD 1.2 billion, according to a company official. The
company also said that it expects that the Sisi and Nubi
fields in the block will start production during 2007.
Total currently produces about 2.5 billion cubic feet per
day (BCFD) of natural gas. Total is Indonesia's biggest gas
producer, exporting it as LNG to Japan, Taiwan, and South

Import Duties Slashed on Upstream Goods

7. The GOI rescinded temporarily import duties for goods
used in upstream oil and gas activities, according to a
Ministry of Finance press release on October 16. The
ministry said the incentive was designed to boost investment
in oil and gas industry. The ministry promulgated the
regulation in Finance Minister Decree No 97/PMK.010/2006 on
October 16, 2006 and it took effect retroactively from July
16, 2006. It will be in effect until July 15, 2007,
according to the press statement. The ministry said the
list of goods to benefit will include those related to
drilling and production, plant and machinery, electrical,
tubing, valves and fittings, building materials, metals and

Total to build 200 gas stations in Indonesia

8. On November 28 local press reported that French energy
giant Total plans to build 200 gas stations in Indonesia
commencing in 2008. Tubagus Haryono, the head of the
downstream oil and gas authority BPH Migas, reportedly said
"They want to build 200 gas stations that sell non-
subsidized gasoline starting from 2008." Total will join
Shell and Petronas in establishing a retail downstream
presence in Indonesia.

Pertamina Cuts December Industrial Fuel Prices
--------------------------------------------- -

9. On November 29, State oil company Pertamina announced
cuts in fuel prices for industrial users during the month of
December. Pertamina will sell premium gasoline for Rp
4,749.5 ($0.524) per liter, down marginally from Rp 4,780.55
($0.527) per liter in November. The company also cut the
price of diesel used for transport to Rp 5,293.45 ($0.584)
per liter from RP 5,480.90 ($0.605). Pertamina lowered the
price of Kerosene to RP 5,280.2 ($0.583) per liter, from RP
5,551.70 ($0.613) this month. The company left unchanged
the price for all subsidized fuel. Pertamina said that the
decision to cut the fuel prices followed the declining price
trend in international markets.

PLN Scores Billion Dollar Bond Success

10. On October 12, state electricity company PLN sold USD 1
billion of bonds to international investors making it the
biggest overseas corporate debt float for Indonesia since
the 1997-98 financial crisis. The 10-year debt will yield

JAKARTA 00013446 003 OF 003

7.9 percent, 144 basis points more than similar-maturity
Indonesian government bonds. PLN will use the proceeds from
the sale to boost power-generating capacity and alleviate
shortages in Java, Indonesia's most-populous island.
Indonesia needs to spend about $27 billion on new plants and
power lines by 2012 to keep up with demand, according to the
World Bank. PLN's loss fell to Rp 2.26 trillion ($246.9
million) in the first half of 2006 from Rp 4.52 trillion
($493.8 million) a year earlier, according to the company's
bond prospectus. It has an installed capacity of 22,725
megawatts for its 35.2 million customers.

Star Energy Claims World's Largest Geothermal Well
--------------------------------------------- -----

11. Local company Star Energy announced on November 29 that
it had found what it claims is the world's largest
geothermal steam well at its Wayang Windu concession in West
Java. The firm said in a statement that its first
development well in Unit 2 of the Wayang Windu complex had
tested to be "the largest dry steam well in the world at
more than 40 MW." The company said the discovery would
allow them to expand the Wayang Windu geothermal plant to
400 MW by 2010. The Wayang Windu geothermal power plant
started operation in early 2000. Star plans to bring the
second unit online in 2008, adding 110 MW to the power
plant's existing capacity of 110 MW.

Sumitomo to Double Tanjung Jati's Capacity

12. Japanese trader Sumitomo plans to double the capacity of
its coal-fired power plant Tanjung Jati B in Central Java at
a cost of $1.3 billion, according to a November 30 press
statement by PLN. Sumitomo will make use of the Independent
Power Producers (IPP) scheme to expand the plant to 2,640 MW
from the existing 1,320 MW, according to PLN. The new units
are expected to be completed in the second half of 2010.
President Yudhoyono inaugurated the 1,320 MW first phase of
the power plant on October 4. PLN and Sumitomo signed a
preliminary agreement during President Yudhoyono's visit to
Japan. The Japan Bank for International Cooperation (JBIC)
will finance the project. PLN said it hopes to complete
negotiations on tariffs by early next year.

New President Director for State Gas Firm

13. State gas company PGN said on November 17 that it had
chosen Soetikno as its new President Director to replace the
retiring WMP Simanjuntak, who will become a Commissioner.
Soetikno, who was previously company Director of General
Affairs, told reporters that the new management will
continue developing the South Sumatra-West Java (SSWJ)
pipeline. "Our priority is to complete the SSWJ project,"
he stated. A PGN spokesman also said the company would
speed up development of a Duri to Medan pipeline in North
Sumatra and that the company would also continue studying
the possibility of building an LNG terminal in Situbondo,
East Java. PGN said it is currently in talks with East
Kalimantan gas producers on possible LNG supply to the
terminal. PGN also reiterated its plan to develop a coal
bed methane (CBM) project with the Australian firm Santos in
South Sumatra. The two companies are continuing with a
feasibility study on the project.

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