The Coordinating Ministry for Economic Affairs

THE COORDINATING MINISTRY FOR ECONOMIC AFFAIRS REPUBLIC OF INDONESIA Main Building, Ministry of Finance, Jl. Lapangan Banteng Timur No.2-4 Jakarta 10710 Tel: (021) 351-1178 Fax: (021) 351-1186 Website: http://www.ekon.go.id

Trade and Investment News1, 28 July 2008

Highlights

Politics  Indonesia to increase cooperation with OECD  Security is tightened ahead of the executions of three convicted 2002 Bali bombers Regions  Jakarta to install 150 CCTV cameras for added security  Riau Islands plan more autonomous regions for 2009 Economy  Bank Indonesia hopeful price rises will ease in the second half of 2008 BUSINESS BRIEF Macroeconomy  Bank Indonesia may raise ratio of bank minimum reserve  Government bought back Rp4.425 trillion of local currency debt Investment  Dutch investment in Batam now over $15M State Concern  Govt. to cut income tax, dividend tax rates next year  Jakarta to take over in-debt gas stations SOEs  International investors expressed interest in buying PT Bank Negara Indonesia stake  PT Petrokimia Gresik and Jordan Phosphate Mines Co.Ltd. signed a joint venture agreement Private Sector  Qatar Telecomm QSC's purchase of PT Indosat is capped at 49%  PT Indosat exceeded its full-year target with 33.5 million mobile phone users Banks  PT Bank Mandiri cut its loan growth target  PT Bank Central Asia say profit growth in the quarter ended June slowed Oil & Gas  PT Pertamina will partially shut down its Cilacap refinery for maintenance  Korea Gas Corp agreed to buy fuel from BP Plc's Tangguh Mining  PT Newmont Nusa Tenggara ordered to drop its IPO plan  Coal miner PT Bayan Resources has secured $300 million syndicated loans

1 This Trade and Investment News is a publication of the Coordinating Ministry for Economic Affairs of the Republic of Indonesia. Readers are welcomed to forward it in its original form but no reproduction is allowed without permission

1 POLITICS

President Yudhoyono: Indonesia to increase cooperation with OECD President Susilo Bambang Yudhoyono agreed Friday to increase cooperation with the Organization of Economic Development (OECD) during a meeting at the presidential office, reported by the Jakarta Post (26/7/2008).

Yudhoyono said after meeting with OECD Secretary General Jose Angel Gurria that the cooperation with the group would boost Indonesia's efforts to increase investments in the country. "I positively accept the OECD's proposal to build a closer partnership through the enhanced engagement. This means there is a greater opportunity for us to work together," Yudhoyono told reporters. "If we can actively take part in the committees they offer, I am sure the cooperation will benefit us," he said.

Indonesia, along with four other non-member countries -- Brazil, China, India and South Africa, were invited by the OECD to embrace what the body referred to as an "enhanced engagement".

The initiative aims at increasing ties between the non-member counties and the OECD in the hope that they will eventually join as members.

The OECD is a multilateral forum comprised of 30 countries committed to a free market economy and the principles of representative democracy.

The OECD on Thursday published its first comprehensive economic assessment of Indonesia. According to the report, Indonesia's rules on foreign direct investment are more restrictive than those of most other OECD countries, making its ratio of financial direct investment to GDP among the lowest in Southeast Asia.

In response to the report, Yudhoyono said Indonesia had shown significant improvements, especially on economic growth, investment and cooperation.

"I acknowledge that despite the improvements, we still have much to do, including reducing poverty and unemployment, and creating a better investment climate. These are issues commonly faced by other developing countries as well."

Gurria said he and the President discussed the report's conclusion and recommendations, including on how Indonesia and the OECD could build a stronger, closer and more structured relationship.

"We talked about creating a more predictable and more structured relationship... with the view of a possible membership," the President said.

"So the option of membership is there, but it's Indonesia's choice, no pressure, no deadline and, in the meantime, we want to concentrate on this closer relationship."

He said he expected the cooperation would benefit Indonesia and the OECD.

He said two ways to measure Indonesia's development were by assessing the country's performance each year and by comparing it to other countries.

2 "If you only measure against yourself you will be very happy because you are better than last year. But what you don't know is that everybody else is moving so fast, and you discover that you might not be moving fast enough.

"So what we can provide is this comparison to the rest of the world... because (Indonesia) can do better in education, health, foreign investment, social security."

Security tightened ahead of terrorist executions Security is being tightened in Bali and Central Java ahead of the executions of three convicted 2002 Bali bombers currently on death row: Amrozi, Imam Samudra, and Ali Gufron alias Muklas, Okezone reported.

Bali Police said on Friday they have deployed 11,000 personnel to secure the island ahead of the imminent execution of three Bali bombers

“Personnel from other institutions may also be added,” Bali Police spokesman Sr. Comm. AS Reniban said, adding that the executioners will be officers from Central Java Police.

In Central Java, security has been tightened around Batu prison on Nusakambangan Island off Cilacap, where the three men are housed, as well as other six prisons on the island.

At least 100 security personnel, including 10 police officers, are on guard there.

“The convicted terrorists are not allowed to socialize with prison officers or other inmates,” head of the penitentiary division at Justice and Human Rights office Bambang said on Thursday, adding that are currently in isolation under 24-hour guard.

Attorney General Hendarman Supandji has said authorities want the trio put before a firing squad "as soon as possible" and before the start of the Islamic fasting month of Ramadan in early September.

Prosecutors have also reportedly scouted "secret" sites for the impending executions of the three death row Bali bombers.

"Our arrival to Nusakambangan is to have a field check for the place where the executions will take place. According to law, the executions is not to be made public, it's a secret," Denpasar Prosecutor's Office general crimes assistant Ida Bagus Wiswantanu said Friday.

Militants Amrozi, his brother Mukhlas and Imam Samudra could be executed at any time over the 2002 Bali bombings, which killed 202 people.

REGION

Jakarta: 150 security cameras focus on 2009 polls As Indonesia beefs up security for next year's presidential elections, the Jakarta government has provided 150 surveillance cameras to the Jakarta Police Traffic Directorate to help monitor the 2009 polls, Seputar-Indonesia reported.

The cameras will be installed at main road intersections, shopping centers and bus terminals.

“We have 40 cameras already installed in Jakarta, but only 12 of them are working,” police Traffic Management Center coordinator Comm. Sambodo Purnomo said, adding the new

3 cameras will be integrated with the Jakarta Crisis Center.

National Police chief Gen. Sutanto said officers have been cooperating with the General Election Monitoring Supervisory Agency and the General Election Commission to help secure every phase of the 2009 election, adding at least Rp1.8 billion is needed to secure the election.

A similar statement also came from the Army chief of staff, Gen. Agustadi Sasongko Purnomo, who said the Army will cooperate with police to secure the election, especially in Jakarta and West Java.

Meanwhile, Jakarta Military Command chief Maj. Gen. J. Suryo Prabowo on Tuesday handed over command to Maj. Gen. Darpito Pudyastungkoro in a ceremony led by Army chief of staff Gen. Agustadi Sasongko Purnomo, reported Antara.

Prabowo has been promoted to be the Army deputy chief of staff.

Pudyastungkoro was previously the Diponegoro Military Command chief overseeing Central Java and Yogyakarta provinces.

The Jakarta Military Command oversees Jakarta as well as parts of Banten and West Java.

Purnomo asked the new commander Pudyastungkoro to maintain and improve coordination with other parties to maintain stability in Jakarta and surrounding areas as "the barometer for stability of national security in general".

Riau Islands province plans more autonomous regions The House of Representatives on July 12 approved a draft law on the formation of 12 new regencies in the country, including Anambas in Riau Islands province, The Jakarta Post reported.

The formation of new autonomous regions is part of Riau Islands' strategy to enhance balanced development and provide improved public services. It hopes that the formation of Anambas, currently part of Natuna regency, will reduce operating expenses in an area of the province made up largely of ocean.

Riau Islands Governor Ismeth Abdullah told The Jakarta Post recently that the province currently consists of four regencies -- Bintan, Lingga, Karimun and Natuna -- and Batam and Tanjung Pinang municipalities.

The provincial administration has long supported the creation of an Anambas regency. It hopes within the next few years to form another autonomous region -- Batam Islands regency -- given Batam city's current population of 700,000. The administration hopes that by creating this regency, it can ensure fairer development among the 300 islands surrounding Batam.

"The formation of Batam Islands regency is likely still a long way off. Looking at geographical conditions, the area is vast and needs special attention, which is certainly different from the attention that Batam Island gets now," Abdullah said.

The provincial administration will submit a proposal to the Home Ministry for an interim regent for Anambas, who will oversee administrative matters until a poll can be organized so voters can elect a regent.

4 Natuna, Anambas' parent regency, is located around 550 km northeast of Batam. The area designated as Anambas regency is located south of Natuna Islands.

Tarempa, located in Siantan district, has been chosen as the capital of Anambas regency.

Anambas is inhabited by 41,341 people, spread across Siantan, Palmatak, Jemaja and East Jemaja districts.

The regency has abundant natural resources, including oil and gas, as well as fisheries and is a potentially rich ecotourism destination.

"The operational expenditures of an island province are much higher compared to on the mainland. It costs more to get from place to place compared to the mainland," Addullah said.

ECONOMY

BI still toils to curb inflation The Governor of Bank Indonesia, Boediono said that he was hopeful that price rises will ease in the second half of the year, and that fighting inflation remains the central bank's priority.

"Our hope is that (annual) inflation in July can be lower than in June. I hope that the 11.03% was the peak and that we are over that," says Boediono as quoted by Dow Jones. He was referring to the rate of June's on year rise in consumer prices.

"Bank Indonesia still sees inflation as its main focus in its monetary control for the next year or year and a half ahead," Boediono said. He added that fighting inflation doesn't present a risk to growth.

As part of the plan, Bank Indonesia may revise the minimum reserve requirements for commercial banks in a bid to contain inflation. The central bank could adjust the minimum reserve requirements -- funds that commercial banks have to set aside at the central bank -- to help control excess liquidity in the market, aside from its interest rate policy.

"As an option, this minimum reserve requirements instrument is still on the table," said Budi Mulya, Deputy Governor of Bank Indonesia, adding that revisions to the requirements could be made if necessary.

Annual inflation in June accelerated to 11.03%, its highest in nearly two years as the full impact of a late May fuel price hike took effect, prompting the central bank to raise its key interest rates BIPG to 8.75% on July 3.

Earlier in the day, Bank Indonesia deputy gov. Hartadi Sarwono said that if "monetary policy proceeds successfully and calms the conditions in the market, Bank Indonesia is optimistic inflation in 2009 can be brought down to the level of 6.5% to 7.5%."

"Bank Indonesia will use all available instruments to ensure that inflation can be brought down," including raising interest rates and intervening in the foreign exchange market, Sarwono said.

Sarwono noted that foreign exchange reserves are "still above $59 billion, and are enough

5 for us to recycle into the market."

The country expects its double-digit inflation to ease in coming months but another increase in interest rates was still a possibility, a central bank official said, quoted by Reuters.

When asked if a further rate rise was possible, Made Sukada, director of monetary policy research at Bank Indonesia said, "It is still an option," adding that inflation might have peaked in June.

"We are expecting lower inflation in the coming months," he said.

The expected lowered down inflation in Indonesia will bring positive respond to Indonesia's plan to offer to swap short-term debt for a 14-year paper. The finance ministry plans to swap government bonds maturing in 2009-2013 -- excluding treasury bills -- with fixed rate bonds FR0035 maturing in 2022, as part of efforts to ease the country's refinancing risks.

The last government bond auction showed improved investor sentiment as the ministry raised Rp6.45 trillion ($705.1 million), more than double its target of Rp3 trillion.

Last week oil price that slightly went down hit the price of natural resources stocks. In last Friday, composite index or IHSG was closed at 2,257.05 and Rupiah was traded at 9133 to US Dollar.

MACRO ECONOMY

BI may reduce bank liquidity to rein in inflation Bank Indonesia is considering raising the ratio of bank minimum reserve fund (GWM) in a bid to cope with accelerating inflation, Dow Jones reported.

Increase in the ratio of GWM will help reduce excess liquidity of banks and in turn will curb inflation, Central Bank deputy governor Budi Mulya said.

Budi said inflation is still a threat and accelerating in many countries, forcing central banks to optimize the use of their monetary instruments.

He said the central bank also will adjust its benchmark interest rate (BI rate) to prevailing economic condition, the newspaper Investor Daily reported.

Banking observer Aviliani said it is wrong to blame bank liquidity for the rising inflation, adding inflation was caused by an increase in imports of goods.

Aviliani said increase in the GWM ratio will slow credit expansion, which has helped boost development of productive sectors.

Govt. in Rp 4.4T debt buys back In a move to lower its interest costs, the government has bought back Rp4.425 trillion ($484 million) of local currency debt which matures between 2009 to 2013 and sold about the same amount of longer-dated notes a statement from the Finance Ministry said, Bloomberg reported.

The government sold 12.9% bonds due in June 2022 at a price of 99.95, Rahmat Waluyanto, the ministry's Director General of Debt Management, said.

6 Investors submitted Rp6.1 trillion of bids.

The government has been buying back higher-yielding debt to reduce its interest payments and lower its refinancing risk for more than three years.

The nation spent more than Rp450 trillion bailing out banks after the 1997-98 Asian financial crisis, raising funds through the sale of so-called recapitalization bonds, which carry relatively high interest rates.

The government plans to sell another Rp3 trillion of bonds on July 29, Waluyanto added.

These will include July 2009 treasury bills and bonds that will mature in June 2015 and June 2021, he said.

Govt. pays 43.7% of interest on foreign, domestic debt The government in the first semester of 2008 realized the payment of Rp41.4 trillion ($4.5126 billion) in interest on its foreign and domestic debt, or 43.7% of the ceiling of amount of Rp94.7trillion, a finance ministry official said, quoted by Asia Pulse.

"The payments were made before the total of the payable interest increased to Rp97 trillion," the ministry's director for settlements, accountancy and evaluation, Widjanarko, said.

He said payments of interest on state debentures at home reached Rp30.7 trillion or about 46.6% of the interest ceiling of Rp65.8 trillion. In the meantime, payments of interest on external debts totaled Rp10.7 trillion, including othercosts such as management fees and commitment fees, he said.

Finance Minister Sri Mulyani Indrawati said recently payments of interest on domestic and external debts this year were estimated to increase to Rp97 trillion from the previous ceiling of Rp94.7 trillion as a result of a change in inflation assumptions from 6.5% in January to 9% or even to 11% later this year.

According to the minister, at present interest rates were relatively high because domestic and global inflation rates were also showing an upward trend and this had affected the interest burden in the state budget.

Exports of foods and beverages up 12% Exports of manufactured food and beverage products rose 12% in the first half of this year compared to the same period last year on rising prices in the world market, Asia Pulse reported.

"The value rose to more than $1 billion but we are not happy with the performance in volume," chairman of the association of food and beverage producers Thomas Darmawan said.

"Demand in international market is decreasing with recession weakening purchasing power in almost all countries," Darmawan said.

Indonesia has exported its manufactured food and beverage products mainly to the United States, Europe, Japan and South Korea, he said.

Last year, Indonesia's exports of the products were valued at $2.1 billion and this year

7 exports are predicted to rise 15%, the newspaper Investor Daily reported.

Tea export to rise by 8% this year

Tea exports may increase 8% this year on the back of stronger demand, an industry player says, quoted by the Jakarta Post.

The national tea council chairman Abdul Halik said tea shipments this year may increase to102,600 tons of green and black tea from 95,000 tons shipped out last year.

"International demand for our tea will likely increase as demand for tea from Kenya and Srilanka -- the world's largest tea exporters -- is predicted to decrease this year," he said.

The country mostly ships the commodity to countries in Europe, the Middle East, the UnitedStates and Eastern Europe.

Indonesia, the world's sixth-largest tea producer, holds 6% of the global tea market, trailing Vietnam, which has 7%, India at 13% and Kenya and Srilanka, which both hold 20%, according to the council.

However, Halik said domestic demand would likely remain constant as Indonesians were yet to view the drink as anything more than a refreshment, where other countries also drank it for its medicinal purposes.

"Despite the (world wide) boom in green tea, domestic tea consumption in Indonesia is still low at around 300 grams per capita per year, as compared with, for instance, the 2.5 kg per capita annually in the UK," Halik said.

Tea can also be used as an ingredient in cosmetics, including lotion, shampoo and toothpaste.

The country's tea production this year is predicted to be 160,000 tons, but Halik said product quality remained a problem.

Indonesia has 136,000 hectares of tea plantation, with the largest area in West Java, followed by Central Java and North Sumatra.

INVESTMENT

Dutch investment in Batam now over $15M The investment of 13 Dutch companies in the province of Batam has reached $15.171 million, Asia Pulse reported.

Their investment is in electronic components, information technology and telecommunications, heavy equipment maintenance, ship instruments and equipment, and the metal industry, Batam Authority spokesman Dwi Djoko Wiwoho said.

With a view to knowing more about investment opportunities for Dutch business players, Consul at the Netherlands Embassy in Jakarta Renate Pors visited Batam on Monday and Tuesday this week.

The Dutch Consul visited PT Philips in the Batamindo Investment Cakrawala industrial

8 estate, McDermott, PT Bredero Shaw Indonesia, PT Worldwide Equipment South East and Bioworldwide Equipment South East.

Renate Pors during those meetings said that European countries, including the Netherlands, are paying keen attention to the rapid growth of Asian countries, including Indonesia.

STATE CONCERNS

Govt. to cut income tax, dividend tax rates next year The government plans to cut the maximum taxation rates for personal and corporate income and reduce charges on dividend revenue, the chief tax official said, quoted by Dow Jones.

The government and a parliamentary commission last week approved a cut in the maximum tax rate on personal income to 30% from the current 35%, and set a single rate of 28% for most companies next year, falling to 25% in 2010, said Darmin Nasution, Director General of Taxation.

Indonesia will halve the rate on dividend revenue to 10% from 20 for personal tax payers and exempt dividends that companies earn from subsidiaries from taxes. The changes come as Indonesia is trying to get more of its 243 million citizens to register as tax payers to boost revenue collections.

"We hope these policies will attract more people to register," Nasution said, saying that there were six million registered tax payers in 2007.

Still, the changes may lead to a loss of Rp40.8 trillion ($4.46 billion) in potential tax revenue in 2009.

The new rates, effective next year, are pending approval by a plenary session of the nation's parliament.

Annual personal non-taxable income, which is deducted from earnings for calculating tax payments, will rise to Rp15.84 million in 2009 from Rp13.2 million rupiah.

Indonesia will also exempt residents that have tax registration numbers from paying the Rp1 million fiscal tax imposes whenever residents leave the country.

The government will also give incentives for companies whose shares trade on the Indonesia Stock Exchange. Companies that have 40% or more of their stake traded on the exchange will get a 5% point discount, paying a rate of 23% on their income next year and 20% in 2010.

Jakarta to take over in-debt gas stations The Jakarta administration is set to take over the management of two compressed natural gas (CNG) stations currently being operated by gas distributor PT Petrogas, The Jakarta Post reported.

City Secretary Muhayat said the administration was considering having city-owned property and infrastructure firm PT Jakarta Propertindo (JakPro) manage the two CNG stations.

The proposal comes amid a dispute between the administration and Petrogas over claims of

9 late payments by the administration to the company.

"It's impossible for the administration to pay its debt (to Petrogas) completely using the city budget because the problem relates to investment," Muhayat said at City Hall.

Petrogas supplies CNG from state gas company PT PGN to TransJakarta buses.

In March, PGN claimed the administration owed a debt of Rp10.6 billion ($1.16 million) for gas used by Transjakarta buses, in addition to a Rp15 billion debt because the administration had agreed to fund the construction of gas pipelines to the two CNG stations.

PGN said the administration was six months behind in payments for CNG for several Transjakarta bus operators.

JakPro spokesman Suryadi said the administration was yet to inform the company about its possibly taking over management of the stations.

Papua: 1.63M hectares for food crops & biofuel The government said it has set aside 1.63 million hectares of land in southern Papua for food crops and plants to produce feedstock for biofuel industry, Asia Pulse reported.

The government will give priority to local investors to develop the plantations and invite foreign investors to invest in the manufacturing sector, Agriculture Minister Anton Apriyantono said.

Apriyantono said landless or meager farmers from Java could move to that area to grow rice in the project called Merauke Integrated Food and Energy Estate.

He said the forestry minister has allowed use of 585,000 hectares of denuded forest land in Merauke for the project. He said rice from the project will be exported.

Govt. eyes reassurance start up The government is studying the potential of creating a reassurance company, Minister for State Owned Enterprises Affairs, Sofyan Djalil said, quoted by DetikFinance.

Djalil said the reassurance sector is lucrative and currently there are no reassurance companies operating in Indonesia.

Djalil added that his office now is also consolidating and coordinating state owned insurance companies adding that Indonesia is a potential market for reassurance business because 80% of Indonesian insurance companies reinsure themselves abroad.

He was referring to audit standards set by the United Nations' International Civil Aviation Organization, or ICAO.

ICAO last year conducted an audit of Indonesian airlines and regulatory authorities, finding that they fell short of international safety benchmarks.

In response to the transport ministry's letter, "the ICAO said that in accordance with its resolutions, (such a ban) is not valid as ICAO audits are only (intended to ensure) airline safety, not to ban other countries," Suyitno said.

10 SOEs Intl investors keen on BNI stake Several international investors have expressed interest in buying a stake in state-owned PT Bank Negara Indonesia from the government, a government official said, Dow Jones reported.

Among them are China Construction Bank, World Bank investment arm International Finance Corp., Investment Corp. of Dubai and the Royal Bank of Scotland Group, Alex Rusli, an advisor at the Ministry of State Enterprises Affairs, said.

Rusli said a Kuwaiti bank has also expressed interest, but he didn't give a name.

The government asked parliament for permission to sell between 10% and 15% in the country's fourth-largest lender by assets later this year. It owns nearly 75% of the bank.

A slew of international banks have bought stakes in Indonesian lenders in recent years to get access to the country's vast market.

Bank Indonesia, the country's central bank, welcomes foreign investment in local banks, hoping their entries will help improve the local banks' performance. The government spent around $60 billion following the 1997-98 Asian financial crises to bail out the banking system.

Petrokimia, Jordan plan chemical factories State fertilizer producer PT Petrokimia Gresik and Jordan Phosphate Mines Co.Ltd. have signed a joint venture agreement to construct two chemicals factories in Gresik, East Java, the Jakarta Post reported.

Petrokimia president director Arifin Tasrif said the factories would cost a total of $197 million and that construction was expected to begin in June 2009 and take 30 months.

The two factories will produce 200,000 tons of phosphoric acid and 600,000 tons of sulfuric acid per year.

He said Petrokimia was the only producer in Indonesia of phosphate-based fertilizer and nitrogenous phosphorus potassium (NPK), and that the company was forced to import an average of 100,000 tons of raw materials every year to meet demand.

"We need to make sure that we have enough raw materials to fulfill the increasing demand for fertilizer," he said Friday after signing the agreement with Jordan's president director Walid Kurdi.

Data from the Association of Indonesian Fertilizer Producers shows domestic demand for fertilizer reached 7.94 million tons last year, up from 7.64 million tons in 2006, 7.22 million tons in 2005 and 7.09 million tons in 2004.

To finance the project, both companies will contribute 30% of the spending, or equal to $30 million each, while the remaining 70% will come from loans, he said.

"We're now in talks with several local and foreign banks. In addition, we will also acquire funding from international financing institutions, including the Islamic Development Bank," he said.

11 Each company will hold a 50% ownership of the upcoming project, he said.

The company also plans to build an urea and ammonia factory in Gresik worth Rp5.7 trillion to fulfill domestic demand, especially in East Java.

Slower growth for PT Telkom Slower growth is tipped for the country's largest telecommunication company PT Telkom in the second quarter after a strong start to the year, Asia Pulse and Antara reported.

In the first quarter, Telkom reported Rp3.2 trillion ($352 million) in net profit or an increase of 5.4% over the same period last year.

Performance in the second quarter was down an official company source told the newspaper Bisnis Indonesia.

Telkom's chief financial officer Sudiro Asno said Telkom is still optimistic it would reach its income growth target of 15% for 2008 with net profit growing 12% this year.

He predicted the number of telecommunications subscribers to grow by 20 million this year with Telkom gaining 50% of the increase.

State-owned pawnshop set to chalk up $70M in net profit State-owned pawnshop Perum Pegadaian said it is optimistic to chalk up around Rp650 billion ($70 million) in net profit this year, Asia Pulse reported.

Pawnshop service is more popular and higher in demand at present under difficult economic condition, its president Chandra Purnama said, without giving figures for last year.

The prevailing economic conditions open greater opportunity for Perum Pegadaian to cope with the financial difficulties faced by the people, Purnama said.

He said the company will expand its outlets all over the country from 1,100 units at present.

PRIVATE SECTOR Qatar Telecom ownership in Indosat capped at 49% Qatar Telecomm QSC's purchase of PT Indosat is capped at 49%, an official with the capital markets regulator Bapepam said, quoted by Dow Jones.

"Bapepam has received a letter from the Minister of Telecommunications and Information, which said that Qatar Telecom can only buy 8.2% of Indosat shares from the public via a tender offer," Bapepam chairman Ahmad Fuad Rahmany said.

Rahmany said that Bapepam has informed the Qatari company about the limit.

Qatar Telecom said last month that it has completed buying a 40.8% stake in Indosat from Asia Mobile Holdings Pte at Rp7,388 per share.

The government has set a 49% limit on foreign ownership of local fixed-line operator and 65% on mobile operators. Apart from Indosat's main business is mobile telecommunications, it has a license to provide fixed-line services.

12 The government owns 14.3% of Indosat and has said it won't sell its stake. QTel has asked to be allowed to bid for the remaining shares held by the public.

Under prevailing regulations at the time of the purchase, QTel's purchase of more than 25% of Indosat meant it had to make a tender offer for outstanding shares. The trigger level for mandatory tender offers has since been raised to a 50% purchase of another company.

Indosat is Indonesia's second-largest cellular provider by subscribers, but also has a small fixed-line business.

Foreign ownership in Indonesian cellular operators is capped at 65%. Analysts had thought QTel might be able to buy up to that level of Indosat.

Indosat tops full-yr subscriber target in July The Indonesia's second-largest mobile phone operator, PT Indosat, has exceeded its full- year target with 33.5 million mobile phone users, a local newspaper reported, quoted by Reuters.

Indosat, 40.8% owned by Qatar Telecom, had set a target of signing up 8 million new subscribers to reach 32.5 million users by the end of the year.

Investor Daily quoted an Indosat director, Guntur Siboro, as saying the company has nearly 33 million cellular phone subscribers and 800,000 fixed-wireless CDMA customers.

Last year, the company's subscriber base leapt 47% to 24.5 million.

"The sharp increase in the number of users is not exclusive to Indosat, but it has happened to all operators," Siboro said.

Indonesia has a rapidly growing telecoms market where the number of mobile phone subscribers is expected to soar to 120 million by the end of 2008 from some 90 million last year.

However, increasing competition among operators and the entrance of new rivals is expected to push margins down.

PT Telekomunikasi Selular (Telkomsel), 65% controlled by PT Telekomunikasi Indonesia and 35% owned by Singapore Telecommunications Ltd , is the largest mobile phone operator which controls over half the market.

United Tractors to issue rights shares to rise $390M Heavy equipment company PT United Tractors said it plans to issue 476.26 million rights shares, priced at Rp7,500 each, to raise $390 million, Dow Jones reported Shareholders registered as of August 19 - when a shareholders meeting is scheduled to be held - will be entitled to one preemptive right for every six shares held.

Tractors said the rights offer price, the terms of the issue and the schedule are subject to change and that any amendments will be announced in the two days before the shareholders meeting.

It will use the proceeds of the rights issue to repay existing debt borrowed to acquire a majority stake in PT Tuah Turangga Agung, to strengthen its working capital and for

13 financing future potential acquisitions.

Car distributor PT Astra International, which owns a 58.45% stake in Tractors, has committed to subscribe its full entitlement of rights shares and has agreed to act as a standby buyer for rights shares which are not taken up by other shareholders.

UBS Investment Bank is acting as the sole financial advisor to the company in connection with the rights issue.

Charoen Pokphand H1 net profit more than doubles Indonesia's largest poultry company, PT Charoen Pokphand Indonesia, said its net profit surged 120.6% in the six months to June, boosted by stronger sales, Thomson Financial reported.

Net profit grew to Rp209.61 billion ($22.95 million) for the first half from Rp95 billion in the same period last year, already exceeding the company's net profit of Rp185.5 billion for all of 2007.

Operating profit increased 110.9% to Rp391.49 billion as sales jumped 64.4% to Rp6.10 trillion.

Animal feeds and day-old chicks largely accounted for total sales, with food products making up the rest.

"The strong first half performance indicates improving consumers' trust on the company's products and the commitment of the management to continue to improve Charoen's financial performance," said deputy president Thomas Effendy.

Effendy said he expects the company's net profit to rise by around 62% this year to Rp300 billion, while sales are forecast to jump 40% to Rp12 trillion.

H1 orders for office space up 280%: Provis Despite a decline in the second quarter, the net take up for office space in Jakarta's central business district throughout the first semester reached 196,000 square meters, or a 280% jump from a year earlier, a property survey shows, The Jakarta Post reported.

It was the highest six-monthly take up since 1997, according to the survey released Thursday.

The survey was conducted by consultant PT Property advisory Indonesia (Provis) in association with Cushman and Wakefield.

Provis divided Jakarta into two areas: CBD and non-CBD. CBD refers to such areas as Sudirman-Thamrin, Senayan and Kuningan, while non-CBD areas are mostly in the south of Jakarta.

As of the end of June, the total supply for the Jakarta CBD is 3.60 million square meters, higher than the demand of 3.11 million square meters.

The high level of take up occurred despite a steady rise in the average rental price, particularly in the second quarter of the year. It rose over the second quarter by 2.5% to Rp134,800 ($14.60) per square meter per month from Rp131,400 per square meter recorded in the previous quarter.

14 Rahardjo said the expensive prices were triggered in part by the government's move in May to increase subsidized fuel prices.

BANKING Mandiri cuts loan growth target-report The country's largest lender, PT Bank Mandiri, has cut its loan growth target for this year to 18% from 22% due to weak global and domestic economic conditions, a financial daily said, quoted by Reuters.

Bisnis Indonesia quoted Mandiri's president director, Agus Martowardojo, saying slower loan growth was expected across the state bank's businesses, which include corporate, consumer and commercial lending.

"Because of the current global and domestic conditions, we have decided to revise down our target for credit expansion from 22% to 18%," Martowardojo was quoted saying.

In May, Martowardojo said the bank was optimistic about achieving 22% loan growth this year despite higher inflation and a fuel price hike.

Consumer loans have been a key driver of Indonesia's banking sector in the past two years as the benchmark interest rate steadily declined from 12.75% in early 2006.

However, as inflation rose, the central bank has lifted its benchmark interest rate by a total of 75 basis points in the last three months to 8.75%.

Although some economic indicators such as sales of cement, cars and motorcycles remain robust, some analysts expect rising interest rates to slow down loan growth ahead.

BCA net drop 7.2% on loans PT Bank Central Asia (BCA), Indonesia's second-largest financial services company by assets, may say profit growth in the quarter ended June slowed to 7.2% on increasing competition to win business as borrowing costs rose, Bloomberg reported.

Net income at the bank rose to Rp1.19 trillion ($130 million) in the three months ended June 30, according a median forecast of six analysts surveyed by Bloomberg. In the first quarter, profit expanded 8.5%.

Increasing competition for mortgage business and corporate loans slowed earnings growth at BCA, controlled by US hedge fund Farallon Capital Management LLC.

Accelerating inflation and higher borrowing costs may slow lending growth at Indonesian banks.

"Bank Central Asia had volume rather than a growth in margins," said Yap Swie Cu, an analyst with PT UOB Kay Hian Securities. The financial services company "has to follow other lenders in reducing charges, while on the other hand fund costs remained the same."

Lending growth increased by more than 30% in the first half of this year, Bank Indonesia said on July 3.

15 PT Bank Danamon Indonesia, controlled by Temasek Holdings Pte and Deutsche Bank AG, which posted a 32% jump in credit growth in the first half expects to extend fewer loans for the rest of the year.

Bank Indonesia approves Maybank's BII purchase Bank Indonesia, the country's central bank, Monday approved the purchase of a 56% stake in PT Bank Internasional Indonesia (BII) by the Malayan Banking Bhd., BII said, quoted by Dow Jones.

"Consequently, Maybank will be making a tender offer for the remaining shares in BII," BII said a a press release.

Maybank in March has agreed to pay $1.5 billion for a 56% stake in BII held by Singapore state-investment company Temasek Holdings Pte. Ltd. and South Korea's Kookmin Bank (KB).

Maybank took a majority ownership of Indonesia's sixth-largest bank by acquiring Sorak Financial Holdings Ltd., which was 75%-owned by Temasek unit Fullerton Financial Holdings Pte. Ltd. and 25%-owned by Kookmin.

Maybank then said it would make a tender offer to buy the remaining shares for Rp510 each - the same price paid to Temasek and Kookmin.

Temasek gave up the stake in BII to comply with an Indonesian law that prevents a single investor from owning a strategic position in more than one local bank.

Temasek also owns 68.05% of Bank Danamon Indonesia, the country's fifth-largest lender, through wholly-owned unit Fullerton Financial Holdings Pte. Ltd.

BTN overshoots credit expansion target State-owned bank PT Bank Tabungan Negara (BTN) said it overshot its target by 20% for credit expansion in the first half of this year, Asia Pulse reported.

The country's 10th largest lender in credit disbursed Rp6 trillion ($660 million) in new credits exceeding its target of Rp5.02 set for the first six months of this year. BTN president Iqbal Latanro said demand was high for housing credits especially for cheap apartments partly because of relatively low interest rate offered by banks on housing credits.

With the new credits, BTN had Rp26 trillion in outstanding credits with a non performing loan of 3.88%, Iqbal said.

The bank hopes to disburse Rp10.04 trillion in new credit in the whole of this year, the newspaper Bisnis Indonesia said.

OIL & GAS Pertamina to partially shut down Cilacap oil refinery PT Pertamina, state oil company, plans to partially shut down the country's biggest oil refinery in Cilacap in Central Java early next month for maintenance work, Dow Jones reported.

The refinery's capacity will drop by 118,000 barrels a day during the maintenance period, processing director Rukmi Hadihartini said.

16 Pertamina will import about 60% of the refinery's 348,000 barrels a day capacity to make up for the shortfall, marketing director Achmad Faisal said.

Indonesia imports a third of its oil-product needs because its daily refining capacity of about 1 million barrels a day is insufficient to meet rising demand.

Korea Gas to buy Tangguh LNG at $20/mbtu Korea Gas Corp., the world's biggest buyer of liquefied natural gas, agreed to buy the fuel from BP Plc's Tangguh project in Indonesia at $20 per million British thermal units, Bloomberg reported.

Korea Gas will buy "nearly" 1 million metric tons of LNG a year, Eddy Purwanto, deputy of operations at oil and gas regulator BPMigas, said.

The cost is based on a Japan Crude Cocktail oil price of $120 a barrel. The price, calculated by Japan's Ministry of Finance, is the average cost of crude oil imports by the North Asian country.

The higher price may allow Indonesia, the world's third-largest LNG exporter, to boost revenue from gas as crude production from aging fields declines.

BP may divert half of the 3.5 million metric tons a year of Tangguh LNG earmarked for Sempra Energy in Mexico to buyers willing to pay more, Energy Minister Purnomo Yusgiantoro said in May 2007.

"We're in talks with other buyers," including Tokyo Gas Co. Ltd. and Thailand's PTT Pcl, to buy the remaining gas that can be diverted, Purwanto said. "We want to get similar prices" to the one agreed by Korea Gas, he said.

Indonesia may get additional revenue of $19.7 billion from Tangguh if all the gas that can be diverted from Sempra fetches as much as Korea Gas is paying, BPMigas said in a statement.

The average price of Tangguh LNG will rise to $8.21 per million BTU from $5.76 per million BTU before the diversion.

BP may start shipping the fuel to Korea Gas in 2010, Purwanto said. The companies haven't agreed on the duration of the contract, he said.

LNG is natural gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline. It is turned back into gas for delivery to users such as power plants.

MINING Newmont's Indonesian unit ordered to cease IPO PT Newmont Nusa Tenggara, the Indonesian unit of Newmont Mining Corp., has been ordered to drop its plan to sell a stake of as much as 49% through an initial public offering, Indonesia's investment agency said, quoted by Bloomberg.

The proposed sale violates Newmont's 1986 mining contract with the government, Indonesia's Investment Coordinating Board said in a statement on Tuesday, adding Newmont has yet to meet an obligation to divest a 17% stake in Newmont Nusa Tenggara.

17 Newmont is reviewing the government's statement and will provide an explanation soon, Newmont's Jakarta-based spokesman Rubi Purnomo said by telephone.

Newmont officials met with the Indonesian bourse to discuss the sale of shares in the operator of the Batu Hijau copper and gold mine, Bisnis Indonesia reported Tuesday.

The government and Denver-based Newmont sought arbitration in March to settle a dispute over the pace of a mandatory divestment of shares in the miner.

Under the 1986 contract, Newmont and other overseas investors are obliged to reduce their combined stake in Newmont Nusa Tenggara to 49% by 2010. Newmont, which owns 45%, said in February all shares in Newmont Nusa Tenggara had been pledged against $1 billion in loans to develop the mine.

Coal miner Bayan secures $300M syndicated loans Coal miner PT Bayan Resources has secured $300 million syndicated loans from nine banks to refinance its debts and fund its capital expenditure, ING, a lead arranger for the loan said, quoted by Reuters.

ING Wholesale Banking, Standard Chartered Bank and Sumitomo Mitsui Banking Corporation are the mandated lead arrangers and bookrunners for the debt.

"On 22nd July 2008 PT Bayan Resources announced that it has signed a syndication agreement to allow further lenders to join the $300 million syndicated credit facilities," ING said in a statement.

ING said PT ANZ Panin Bank, Commerzbank Aktiengesellschaft, Credit Industriel et Commercial, Mizuho Corporate Bank, DZ Bank AG and PT Bank Mandiri have joined the syndication.

Bayan Resources is set to raise as much as $695 billion by offering 25% of its enlarged and existing capital in an initial public offering this year.

Indonesia is the world's largest thermal coal exporter and miners have gained from strong demand from China and India and record high coal prices.

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