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