IRAN -- PRESIDENT YUDHOYONO HIGHLIGHTS TRADE

S E C R E T SECTION 01 OF 02 JAKARTA 000505

SIPDIS

SIPDIS

DEPT FOR P, T, EAP, EAP/MTS, EAP/MLS, NEA, NEA/IR, ISN,
ISN/RA
NSC FOR EPHU

E.O. 12958: DECL: 03/12/2018
TAGS: PGOV PREL PINS ID IR
SUBJECT: IRAN -- PRESIDENT YUDHOYONO HIGHLIGHTS TRADE
DURING VISIT, BUT NUCLEAR ISSUE INTRUDES

REF: JAKARTA 462 AND PREVIOUS

Classified By: Pol/C Joseph Legend Novak, reasons 1.4 (b+d).


1. (C) SUMMARY: President Yudhoyono visited Tehran from
March 10-12. While there, he highlighted bilateral economic
cooperation and downplayed the controversy over Iran's
nuclear program. Although he signed some deals in the
economic area, the nuclear controversy was never far from the
surface with Ahmadinejad thanking Indonesia for its recent
abstention on UNSCR 1803. The Indonesian media gave the
visit prominent, largely factual coverage. Yudhoyono is now
on his way to the OIC Summit in Dakar. END SUMMARY.


2. (U) President Yudhoyono visited Iran March 10-12 as part
of a four-nation tour. From Tehran, SBY will head to Dakar,
Senegal, for the Organization of the Islamic Conference
Summit, then to South Africa for a bilateral visit and
finally to Dubai to promote trade and investment.

REFINERY JOINT VENTURE ANNOUNCED (AGAIN)


3. (SBU) Indonesia tried to keep the focus of the visit on
economic issues. During the trip, the two parties signed a
memorandum of understanding for a 300,000 barrel per day
(bpd) capacity refinery in Banten, western Java, which will
require a $6 billion investment. State oil company Pertamina
and National Iranian Oil Refining and Distribution Company
(NIORDC) will each have 40-percent shares in the project,
while Malaysian firm Petrofield Refining will take a 20
percent stake. The parties said they will seek almost $4
billion in bank loans to finance the project. Indonesian and
Iranian officials first announced this deal in 2003 with a $2
billion price tag. They made subsequent re-announcements in
2005 and 2006. In June 2007 Pertamina CEO Ari Soemarno
stated publicly that the project was on hold due to rising
project costs and insufficient long-term crude supply.


4. (SBU) At various times during the project's life partners
have included the Venezuelan state oil company PDVSA, Libya's
state oil company, Chinese interests, local firm Medco and
several Malaysian companies. Since 1998, the GOI has
approved more than 20 refinery projects. None have been
built. Rising input costs for steel, scarcity of skilled
labor, land acquisition and permitting red tape, low
downstream margins, and lack of long-term crude supply are
the continuing roadblocks to realizing these projects,
according to our energy company contacts. In this most
recent announcement, the Iranians have committed to supply
150,000 bpd, pulling back their original offer to supply the
full 300,000 bpd. Indonesia's subsidized retail fuel market
and declining upstream production mean that potential
investors will pay market prices for their crude supply and
sell each barrel to the domestic market at a 30-to-40-percent
loss. Our expatriate energy contacts express doubt that any
refinery projects in Indonesia will come to fruition on a
purely commercial basis as long as the downstream market
remains subsidized.


5. (S) Treasury Assistant Secretary for Terrorism Finance
Patrick O,Brien will visit Jakarta in early April, and we
plan meetings for him with local banks to explain the
implications for them if they choose to do business with
Iranian entities.

NUCLEAR CONTROVERSY LOOMS LARGE


6. (SBU) Despite Yudhoyono's efforts to highlight the
economic aspects of Indonesia-Iran relations, the controversy
over Iran's nuclear program featured prominently. Speaking
with President Ahmadinejad, SBY reportedly stated that
Indonesia had abstained on UNSCR 1803 because Iran's
continued cooperation with the IAEA obviated the need for
further sanctions. Yudhoyono dismissed the latest resolution
as a "political" move and said outstanding issues re Iran's
nuclear activities should be settled through the ongoing IAEA

JAKARTA 00000505 002 OF 002


process.


7. (SBU) President Yudhoyono also reiterated Indonesia's
support for Iran's right to a peaceful nuclear program.
(Note: Before SBY left Jakarta, Presidential Spokesman Dino
Djalal was reported as endorsing Iran's right to enrich
uranium--something clearly prohibited by UNSCRs 1737, 1747
and 1803. Department of Foreign Affairs (DEPLU) officials
later explained that Djalal was misquoted. While Indonesia
recognized Iran's right to a peaceful nuclear program, they
said, Indonesia fully supported UNSC resolutions calling on
Iran to halt all enrichment activities.)


8. (SBU) Calling Yudhoyono a "brother," Iranian President
Ahmadinejad hailed Indonesia's abstention on UNSCR 1803. The
Iranian leader said Indonesia's stance in the UNSC would lead
to better bilateral relations between the two countries.
Ahmadinejad offered to share Iran's nuclear know-how with
Indonesia's own nascent civil nuclear program.

MEDIA COVERAGE


9. (U) Indonesian newspapers gave the trip front-page
coverage and carried largely factual reports of the visit.
Leading dailies Kompas and Media Indonesia reported on the
two leaders' comments re the nuclear issue and on the various
cooperation agreements signed. Mass-market daily Indo Pos
carried a lightly satirical account that gave relatively
little attention to the various economic deals, omitted
Yudhoyono's remarks and focused on the effusive Iranian
welcome for Yudhoyono, including abundant posters of
Yudhoyono lining the motorcade route and Ahmedinedjad's
enthusiastic embrace of SBY, FM Wirajuda and Special
Presidential Envoy Alwi Shihab.


10. (U) In a March 12 editorial, Kompas praised the visit as
an opportunity to show the West that Iran was working with
the IAEA and that more sanctions would be counterproductive.
The paper also called on the GOI to learn from Iran regarding
the development of defense equipment.


11. (U) Indonesia's Islamic-oriented media has so far
reported the visit factually, with many papers running
stories from the national news service ANTARA. We expect,
however, that this segment of the media might begin running
commentaries and analytic pieces in the coming days.

HUME