SINGAPORE SHIPBUILDERS RELOCATING TO BATAM

Business and Investment - November 17, 2006

Fadli, The Jakarta Post, Batam

With Singapore restricting the growth of its shipbuilding industry due in part to environmental reasons, Batam and Karimun islands are taking advantage by attracting increasing numbers of shipbuilders from the neighboring country.

"Batam and Karimun have become the main destinations for Singaporean shipbuilders wishing to relocate. We welcome this trend because the industry has the potential to provide significant employment," said Chandra Dahlan, the chairman of the Batam Shipyard Offshore Association (BSOA).

BSOA figures show that there are currently 33 shipbuilders operating in Batam alone, with over 80 supplier companies. Chandra said that at least five of the shipbuilders had relocated from Singapore.

He added that with the strategic position occupied by the two islands, the trend would likely continue over the next few years.

Johannes Kennedy Aritonang, the chairman of the Batam branch of the Indonesian Chamber of Commerce (Kadin), also applauded the trend, saying it would help spur economic growth.

However, he pointed out that the relocation trend only involved small shipbuilders, which he claimed was the result of Singapore's inconsistency in implementing its environmental policies.

"At the moment, we can see the relocation only concerns small-scale companies, because despite its environment policies, Singapore is still holding on to the large-scale ones. They (the small shipbuilders) do contribute to the local economy, but to a limited extent," Johannes said.

If the trend continued, the environment in the two islands would suffer, he added.

"What Batam and Karimun want are the big shipbuilders, which comply with proper and globally standardized working mechanisms. But not the small companies, which often neglect environmental concerns."

US$1.1B PGN PIPELINE EXPECTED TO COME ONSTREAM NEXT MONTH

Business and Investment - November 18, 2006

The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono has been drafted in to inaugurate a US$1.1 billion pipeline linking South Sumatra and West Java some time before the end of this year.

The pipeline, which will be operated by state-owned gas distributor PT Perusahaan Gas Negara (PGN), will supply between 300 million and 400 million standard cubic feet of gas per day (MMSCFD).

PGN's newly appointed president director, Sutikno, said Friday in Jakarta that the construction work was now 85 percent complete.

"We hope that operations can commence on Dec. 21," he said following an extraordinary shareholders, which endorsed his appointment as the company's top executive, replacing WMP Simanjuntak.

The project, comprising two pipeline tracks spanning a total of 1,106 kilometers from Grissik in South Sumatra to Rawa Maju in West Java, started last year.

"We hope we will be able to get additional gas supplies of about 300 million MMSCFD next year, thanks to this project," said PGN finance director Djoko Pramono.

The company said last year that when the pipeline came onstream, the company would see its 2007 revenues triple from the Rp 4.4 trillion (US$488 million) recorded in 2004.

The company booked a 22 percent revenue increase to Rp 5.4 trillion in 2005, as compared to 2004.

The gas distributor's net profit in the first nine months of this year rose 251 percent to Rp 1.5 trillion from Rp 427 billion a year earlier, while revenues from gas sales and transmission as of Sept. 30 jumped to Rp 4.9 trillion from Rp 3.9 trillion in the same period last year.

The meeting also endorsed the appointment of new development director Adil Abas, and also appointed Sutikno to double up as the company's business director.

Djoko was also named director for general affairs, while Simandjuntak was appointed to the company's board of commissioners.

PGN is the dominant player in the Indonesian natural gas market.

Next year, the company is planning to build another pipeline connecting Medan in North Sumatra and Duri in Riau. The 465-kilometer pipeline, which will have a total capacity of 250 MMSCFD, will cost about $490 million.(09)

GOVT PLANS NEW LEGISLATION FOR SPECIAL ECONOMIC ZONE

National News - November 19, 2006
Urip Hudiono, The Jakarta Post, Hanoi

The government will issue a new regulation providing the legal basis needed for the special economic zone (SEZ) in Batam it is jointly developing with Singapore, ironing out as well several pending problems in business license administration, immigration procedures and labor skills.

The Office of the Coordinating Minister for the Economy is currently preparing the government regulation in lieu of law for SEZs, which is expected to come into effect "as soon as possible", said State Secretary Yusril Ihza Mahendra after a meeting Saturday between President Susilo Bambang Yudhoyono and Singapore prime minister Lee Hsien Loong on the sidelines of the APEC Summit here in Hanoi.

The government has decided not to embed the policies of SEZs in its revision of the country's Investment Law, which the House of Representatives is currently deliberating, as "there were too many SEZ-specific issues to be implemented (under one legislation)," Yusril said.

It may also be a faster and more effective way for the government to set up more investment-boosting SEZs throughout Indonesia.

"We'll talk with the House so that the new government regulation will not face too many challenges when the House deliberates on it," he said, without elaborating on the contents of the new regulation.

The government may initiate the issuance and imposing of a government regulation in lieu of law, with the House having to deliberate and approve or reject it within six months.

Investors have indeed been calling for the government to issue specific laws on SEZs, to provide the certainty of a legal basis for their investments. The government may issue one regulation for each SEZ.

The government will soon revise a 2000 government regulation providing incentives of reduced income tax for investments into 15 industry sectors and nine other region-based investment sectors.

Batam island, along with Riau Islands province's Bintan and Karimun, have since June been declared an SEZ, due to their strategic location near Singapore, with industries there now in need of space to expand. Potential investments in the Batam, Bintan and Karimun SEZ include the shipyard and electronics industries. The government plans to set up 14 SEZs throughout Indonesia.

Meanwhile, Coordinating Minister for the Economy Boediono said Friday's meeting was a follow-up briefing of a recent third round of talks of a joint steering committee established between Indonesia and Singapore for the SEZs.

The government will continue to improve the processing time for business licenses in Batam through the newly established one-stop investment center, Boediono said, and the setting up of an investor relation unit to handle any requirements and complaints from investors.

Immigration procedures for businesspeople from Indonesia and Singapore who frequent the SEZs will also be simplified and improved, using a so-called electronic card identity system for faster processing.

"We will also work together with Singapore in training related administrative officers, as well as skilled labor the industries will need at Batam Polytechnic," he said.

The Batam SEZ has since its establishment in June seen 37 investment projects worth US$90 million, providing up to 10,750 jobs, Investment Coordinating Board head M. Lutfi said.

The government is expecting to make Batam Indonesia's main export center, doubling its export value to US$3 billion, or making up 10 percent of Indonesia's total exports, in the next three years, Lutfi added.

FIRMS EYE UP 3 WATER-SUPPLY PROJECTS

Andi Haswidi, The Jakarta Post, Jakarta

Three private firms have expressed a keen interest in investing in three water-supply projects worth Rp 1 trillion (around US$109 million) that have been put on the table by the government at the Infrastructure Conference and Exhibition 2006.

"Many investors are interested in our water projects. At least three of them have directly approached me today and stated their intention of tendering for piped-water projects," Public Works Minister Joko Kirmanto said at the conference in Jakarta on Thursday.

Joko said the three companies were Tyco Water of the U.S., Ami Water from Singapore and a local firm from East Kalimantan.

During the three-day infrastructure forum, which will end Friday, the government is offering three water-supply projects that will serve as models for private-public partnership (PPP) projects in the water sector.

The three projects are the Bandung water-supply scheme, which is worth Rp 300 billion, the Tangerang water-supply scheme, worth Rp 300 billion, both of which are located in West Java, and the Dumai water-supply project in Riau province, which is worth Rp 400 billion.

Joko said that the three companies had already conducted studies at the project locations, which would give them an advantage in submitting unsolicited bids.

The tenders for the projects will be launched this month, while pre-feasibility studies will be conducted in November, prequalification in December and acceptance of the final bids by as early as January 2007.

The government is aiming to tackle the chronic underdevelopment of the country's water-supply sector. At present, about two-thirds of Indonesia's 220 million people do not have access to a clean-water supply.

In cities, piped-water coverage averages only about 39 percent, while in rural areas coverage averages less than eight percent.

Under a 2005 presidential regulation, PPP projects can be identified and initiated both by the government and the private sector, but the private-sector promoters must be selected through an open and transparent tender.

The regulation permits tariffs to be set so as to allow for full-cost recovery. Should full-cost recovery exceed the ability of consumers to pay, the government must make good the difference through the payment of a subvention to the operator.

One possible problem facing PPPs is resistance from regional governments in the form of bureaucratic, anti-private sector ordinances.

Aware of this possibility, Joko said that he had ordered the Water Supply System Development Supporting Agency to assist investors when dealing with local administrations.

"I am sure that every regional government wants to work for the benefit of its residents. Local administrations will be allowed to stipulate their own rules as long as these don't conflict with our national objectives," he said.

The minister also said there would be no restrictions on which parts of the country investors, whether local or foreign, would be allowed to develop projects.

"Any restrictions will be set by the market itself. I don't think that many big overseas companies will want to invest in rural areas that can only generate insignificant revenues. They will aim for the big cities and leave the rest to the local government water utilities," he said.

U.S. FIRM SETS SIGHTS ON PURCHASES IN RI

Tony Hotland, The Jakarta Post, Jakarta

U.S.-based private equity company Texas Pacific Group (TPG) said Thursday it had set up a local subsidiary, Northstar Equity Partners, as a reflection of its growing interest in investing in Indonesia.

TPG is the world's second biggest buyout firm and is reported to have about US$45 billion in assets at its disposal. It has acquired stakes in several major international corporations, such as Baxter International Inc. and Burger King.

TPG chairman David Bonderman met Thursday with President Susilo Bambang Yudhoyono at the latter's office, just a day after Yudhoyono opened the three-day Indonesia Infrastructure Conference and Exhibition 2006.

"Indonesia's economy is growing, a resource-based economy, so we feel now is the right time to start investing," said Bonderman.

Among those accompanying Yudhoyono were Coordinating Minister for the Economy Boediono, Finance Minister Sri Mulyani, Transportation Minister Hatta Radjasa and State Minister for State-owned Enterprises Soegiharto, while Bonderman was accompanied by TPG managing director Tim Dattels and Northstar Equity Partners managing director Patrick Wallujo.

Wallujo said Northstar had start-up capital of $100 million, although he said this figure could grow depending on the value of prospective investments.

"We are looking at the infrastructure sector as well as natural resources, such as biofuel energy and plantations," he said.

Later on, Bonderman met with Vice President Jusuf Kalla, who was accompanied by Emirsyah Satar, the president director of state-owned airline PT Garuda Indonesia, prompting suggestions that the American firm might be interested in acquiring a stake in the debt-ridden airline.

During a question-and-answer session at the presidential office, presidential spokesman Dino Patti Djalal abruptly cut short a journalist who had asked Bonderman whether Northstar was interested in taking a stake in Garuda.

Garuda has long been a chronically loss-making venture, reportedly primarily due to mismanagement. It is seeking to restructure its $794 million debt, while the government is weighing up the options of either injecting fresh capital into the airline or selling it to investors.