ENERGY HIGHLIGHTS - DECEMBER 2006

UNCLAS SECTION 01 OF 05 JAKARTA 000067

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E.O. 12958: N/A
TAGS: EPET ENRG EINV PREL ID
SUBJECT: ENERGY HIGHLIGHTS - DECEMBER 2006



1. Summary. The Ministry of Energy and Mineral Resources (MEMR)
announced on December 13 that 18 companies and consortia won tenders
for 18 oil and gas blocks across Indonesia, committing $235.8
million in exploration funds over three years. On December 20, the
Ministry of Finance signed memoranda of understanding (MOUs) with
local banks to provide subsidized financing to plantations in
support of the Government of Indonesia's bio-energy initiative. The
GOI sold a 5.3% stake in gas state-owned gas distribution company
Perusahaan Gas Negara (PGN) on December 15, earning Rp 2.1 trillion
($233 million) from the sale. Minister of State-Owned Enterprises
Sugiharto swore in a new Board of Commissioners for state-owned oil
and gas company Pertamina on December 14. Pertamina raised the
wholesale price of liquefied petroleum gas (LPG) supplied to medium
and large manufacturers by 10.8 percent on December 13. On December
12, Pertamina announced it had decided to obtain $500 million in
loans from local banks to finance eight oil and gas projects in

2007. Severe flooding in Aceh and North Sumatra provinces near the
end of December affected oil and gas operations of Pertamina and
ExxonMobil. On December 18, state electricity company Perusahaan
Listrik Negara (PLN) opened tenders for 25 coal-fired power plant
projects outside of Java. Local energy and electricity company
Truba signed an MOU with Hong Kong-based Shanghai Electric
Generation Group on December 14 to jointly build and operate a $200
million coal-fired power plant in Kuala Tanjung, North Sumatra. On
December 19, Pertamina's exploration and production subsidiary,
Pertamina EP, the Korean oil and gas firm Kodeco Energy, and
Indonesian energy company Lapindo signed seven supply contracts for
695.8 trillion British thermal units (TBTU) of gas worth $2.8
billion, of which roughly 79 percent will be allocated to gas-fired
power plants in Java. Bermuda's Kalimantan Gold Corporation
finalized an option deed with Australia's Oxiana on December 18 for
cooper and gold prospecting in Kalimantan. This report uses an
exchange rate of Rp 9,025/USD. End Summary.

GOI Announces Winners of Oil And Gas Tenders
--------------


2. The Ministry of Energy and Mineral Resources (MEMR) announced on
December 13 that 18 companies and consortia won tenders for 18 oil
and gas blocks across Indonesia through a direct offer system. A
MEMR press statement noted that the companies have committed
investments of $235.8 million over three years, including $25.5
million for geological and geophysical studies, $37.8 million for
three-dimensional seismic surveys of over 1,780 square kilometers,
$33.6 million for two-dimensional seismic surveys of over 9,170
square kilometers, and $138.9 million for drilling 32 exploration
wells.

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Table 1: Exploration Blocks Awarded
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Block Area Onshore/ Winner
Offshore
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Duyung Natuna Offshore Transword Exploration

Pari Natuna Offshore Indoreach Exploration

Tonga Sumatra Onshore Mosesa Petroleum,
Kencana Surya Perkasa,
Petros

Batu Gajah Sumatra Onshore Ranhill Jambi Inc.

Lemang Sumatra Onshore Hexindo Gemilang
Jaya, Indelberg

Batanghari Sumatra Onshore Gregori Gas Perkasa,
CNOOC

Karang Sumatra Onshore Odira Energy Perkasa
Agung

Sekayu Sumatra Onshore Star Energy Holding

Alas Jati East Java Onshore Insani Bina Perkasa

North East Java Offshore Petro Java
Kangean International Inc.

Sibaru East Java Offshore Mitra Energy Ltd,
Pearl Oil

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West East Onshore Kalimantan Kutai
Sangata Kal. Energy

Wain East Onshore Pandawa Prima Lestari
Kal.

Kutai East Onshore Ephindo, Serica
Kal. and Energy
Offshore

Buton Southeast Onshore Japex, Premier Oil,
Sulawesi and Kufpec
Offshore

Budong West Onshore Gema Tera, Manley NV,
Sulawesi TGS Nopec

Kuma West Offshore ConocoPhillps, Stat
Sulawesi Oil ASA

Karana Makassar Offshore Pearl Oil
Strait

Source: Media Accounts.


3. An initial GOI offer of 21 blocks through the direct offer system
drew 23 bids from 8 consortia and 15 companies, including several
foreign companies such as ConocoPhilips, Stat Oil ASA, Premier Oil,
and Kufpec. According to the terms of the tenders, the GOI will
receive $31.5 million in signing bonuses from the 18 investors 30
days after finalizing actual contracts.

GOI Signs Biofuel MOUs With Local Banks
--------------


4. On December 20, Minister of Finance Sri Mulyani Indrawati signed
memorandum of understanding (MOUs) with state-owned Bank Mandiri,
Bank Rakyat Indonesia, Bank Bukopin, and two regional banks, to
provide up to Rp 25.6 trillion ($2.8 billion) for the finance the
development of agricultural crops for bio-energy and the
revitalization of existing plantations. The banks will disburse the
loans in stages over the next few years according to plantations'
needs. Under the terms of the MOU, interest rates on loans to
plantations will be capped at 10%, with the GOI subsidizing any
further interest charges. The GOI pledged in its Fiscal Year 2007
budget to provide interest-rate subsidies of up to Rp 1 trillion
($111 million) to support the program. Coordinating Minister for
the Economy Boediono, Minister of Agriculture Anton Apriyantono,
Bank of Indonesia Governor Burhanuddin Abdullah and local government
heads witnessed the MOU signing.

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Table 2: Loan Commitments for Biofuel Program
--------------
Bank Loan Commitment
(in Rp trillion)
--------------
Bank Rakyat Indonesia (1) 12.0
Bank Mandiri (2) 11.1
Bank Bukopin (3) 1.0
BPD Sumbar (4) 1.0
BPD Sumut (5) 0.5

Source: Ministry of Finance
(1) Fourth largest bank by asset; state-owned; well-known for micro
financing.
(2) Largest bank; state-owned.
(3) Fifteenth largest; partly owned by government.
(4) West Sumatra's Regional Development Bank.
(5) North Sumatra's Regional Development Bank.

GOI Divests Shares In State-Owned Gas Firm
--------------


5. On December 15, the GOI divested itself of a 5.3% stake in
state-owned gas distribution firm Perusahaan Gas Negara Tbk (PGN),
raising Rp 2.1 trillion ($233 million) in proceeds. With the
divestment, the GOI's stake in PGN decreased to 54.1%. The GOI had
hoped to raise as much as Rp 3 trillion ($332 million) from the sale
to plug an expected budget shortfall this year of Rp 40 trillion
($4.4 billion). The GOI raised Rp 1.2 trillion ($133 million) from

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the company's initial public offering in 2003, but cancelled plans
to sell 7.3% of PGN's shares in 2005 following strong opposition in
parliament.

GOI Appoints New Pertamina Board
--------------


6. On December 8, Minister of State-Owned Enterprises Sugiharto
swore in retired Indonesian Military General Endriartono Sutarto as
the new Chairman of the Board of Commissioners of state-owned oil
and gas company Pertamina. Sugiharto also swore in two other new
members of the Board of Commissioners: Ministry of State-Owned
Enterprise Assistant Deputy for Strategic Industries Irnanda and
OPEC Representative Board Chairman Maizar Rahman. Sutarto replaced
Martiono Hadianto, while the other two new members replaced Energy
and Mineral Resources Department Director General of Electricity and
Energy Usage J. Purwono, and Iin Arifin Takhyan, who was appointed
as Pertamina Vice CEO last March. According to press reports, the
GOI decided on the new Pertamina board lineup on December 5 during a
closed shareholders meeting with President Susilo Bambang Yudhoyono.


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Table 3: Pertamina's Board of Commissionaires
-------------- --------------
Position December 2006 Previous
-------------- --------------
Chief Commissioner Endriartono Martiono Hadianto
Independent
Commissioner Umar Said Umar Said
Commissioner Muhammad Abduh Muhammad Abduh
Commissioner Irnanda J. Purwono
Laksanawan
Commissioner Maizar Rahman Iin Arifin Takhyan

Source: Ministry of State Owned Enterprises

Pertamina Raises Industry LPG Price
--------------


7. Effective December 13, state-owned oil and gas company Pertamina
raised the price of bulk liquefied petroleum gas (LPG) for medium
and large manufactures by 10.8 percent from Rp 5,280 ($0.58) per
kilogram (kg) to Rp 5,852 ($0.64) per kg. Pertamina spokesman
Toharso said that the move would cut losses Pertamina incurs by
selling LPG below the price it purchases it from suppliers.
Pertamina said it would try to avoid increasing the price of LPG for
households and smaller industries through the end of the year.

Pertamina To Secure Local Loans For Eight Projects
-------------- --------------


8. During its December 12 general shareholders meeting, Pertamina
management agreed to secure a loan of $500 million from a local bank
consortium including Bank Mandiri and Bank Negara Indonesia (BNI).
The proceeds of the loan will finance eight oil and gas projects
commencing in 2007. Newly appointed Pertamina Board of
Commissioners Chairman Endriartono Sutarto said that the bank
consortium had initially offered $1.4 billion, but Pertamina decided
to obtain only $500 million. Pertamina Director for Finance
Frederick T. Siahaan told the press that a portion of the loan
proceeds will finance the Cepu Block development project ($50
million),the construction of the Kamojang Geothermal Power Plant
Unit 4 ($80 million),and the development of Pondok Tengah field in
Bekasi, West Java. Pertamina will also use a portion of the loan to
purchase eight 70,000 deadweight tonnage capacity oil tankers; build
a primary transit terminal in Tuban, East Java; and revamp several
oil refineries, including those in Balongan and Cilacap on Java
Island, and another in East Kalimantan.

Aceh Flooding Affects Oil Production
--------------


9. Severe flooding in Aceh and North Sumatra Provinces starting on
December 22 has significantly affected Pertamina's Rantau upstream
oil production operations located in the border area of the two
provinces, according to the company. Pertamina partially suspended
operations in Rantau where, as of December 25, 98 percent of its
facilities were flooded by water. Rantau is a mature Pertamina's
oil and gas field operation, which has been supplying gas to North
Sumatra's Belawan power plant at a declining rate. The flooding has
also affected facilities at the Arun block gas fields in Aceh owned

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by ExxonMobil. In spite of the floods, ExxonMobile has been able to
continue its production activities at full capacity.

Tender For Coal-Fired Power Plants
--------------


10. State-owned electricity company Perusahaan Listrik Negara (PLN)
on December 18 opened tenders for the construction of 25 coal-fired
power plants outside Java Island. The tenders are part of the GOI's
"fast track" program to build an additional 10,000 watts of
electricity generating capacity by 2009. Pre-qualification
documents for construction of power plants on Java Island allow
tender participants to provide 85 percent of project funding in the
form of export credits. However, the pre-qualification invitation
for coal-fired power plants outside Java Island allows tender
participants to propose financing through any form of export credit
scheme or local financing to cover the entire project cost. PLN
Director for Finance Parno Isworo, however, said that funding
schemes for the construction of coal-fired power plants outside Java
Island are still under discussion. Head of the "fast track"
program's implementation team Yoga Pratomo added that PLN would
cover some of the projects' cost by issuing bonds through Indonesian
banks. PLN raised $1 billion through an international bond issuance
in October.

PLN Appoints Contractor To Build Power Plant
--------------


11. On December 14, publicly listed engineering and electricity
company Truba Alam Manunggal (Truba) and Hong Kong-based Shanghai
Electric Generation Group Co. Ltd. (SEG) signed an MOU agreeing to
jointly build and operate a 2x125 megawatt, $200 million coal fired
power plant in Kuala Tanjung, North Sumatra. PLN directly appointed
SEG to develop the power plant. Head of the local mining and energy
office Washington Tambunan said that PLN made the direct appointment
due to the acute electricity crisis in the province. Truba
President Director Arifin Wiguna said construction of the power
plant would start in January 2007 and begin commercial operation in

2008. He noted that his company would soon sign an agreement
whereby PLN would purchase electricity from the plant at $4.5 cents
per kilowatt-hour (KwH). Earlier in November, Truba and SED signed
another MOU with local company Central Pertiwi Bahari to build a
2x25, $60 million coal fired power plant in North Lampung.

Natural Gas Sellers And Buyers Sign Agreements
-------------- -


12. Pertamina subsidiary Pertamina Eksplorasi & Produksi (Pertamina
EP),Korean oil and gas firm Kodeco Energy, and Indonesian energy
company Lapindo signed seven supply contracts on December 19 for
695.8 trillion British thermal units (TBTU) of gas, of which roughly
79 percent will be allocated for gas-fired power plants in Java.
Total value of the agreements is $2.8 billion. Upstream oil and gas
authority BP Migas Chairman Kardaya Warnika said he hopes the
agreements will encourage other production sharing contracts (PSCs)
aimed at meeting domestic gas supply requirements.

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Table 4: Domestic Gas Contracts Signed
-------------- --------------
Agreement Gas Volume
(TBTU)
-------------- --------------

Pertamina EP - Sumber Petrindo Perkasa 219
12-year period starting 2009
Central Java

Pertamina EP - Cikarang Listrindo 394
21-year period starting 1995 (Amended)
West Java

Kodeco Energy - MKS n/a
Expected to start 2007
East Java

Kodeco Energy - PGN 51.3
6-year period

Lapindo - Indogas Kriya Dwiguna 10.2
10-year starting 2007


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Pertamina EP - Pertiwi Nusantara 4.3

Pertamina EP - Fajar Surya Wisesa 17.0

Source: BP Migas


13. Elsewhere, BP Migas said in a December 19 statement that it had
facilitated a Cargo Loading Agreement between PT Pertamina EP and
state-owned fertilizers PT Pupuk Iskandar Muda (PIM) in Aceh and PT
Pupuk Kalimantan Timur (PKT) in East Kalimantan. Under the deal,
Pertamina will swap a total of 8.9 TBTU of gas or about 3 cargoes of
liquefied natural gas (LNG),which was previously allocated for PKT,
to support the operation of PIM. According to the BP Migas
statement, the swap will begin in January 2007 and support the
operation of the PIM fertilizer plant for six months.

Kalimantan Gold And Oxiana Close Deal
--------------


14. According to press reports, Bermuda mining company Kalimantan
Gold Corporation Limited (KGC) announced on December 18 that it had
finalized an option agreement with Australian copper and gold mining
company Oxiana Ltd. for exploration of Kalimantan's copper and gold
prospects. The agreement covers three key areas, Baroi, Beruang and
Mansur, which form part of KGC's 941 square kilometer holdings in
Central Kalimantan. Under the agreement, Oxiana will reportedly
initially invest $2.5 million to drill 12 deep prospecting holes
over a period of twelve to eighteen months. Oxiana then has an
option for taking a 40 percent stake in completing a pre-feasibility
study and an option for a 66.7% stake for completing a bankable
feasibility study. If any of the projects proceed to the mine
development stage, the deed allows Oxiana to provide significant
funding assistance for financing KGC's share of mine development.
KGC reportedly starting working on the Kalimantan project in 1996,
and has reportedly invested to date roughly $12 million for the
drilling of 70 prospecting holes.

PASCOE