Monday, August 25, 2008

VP to drop 2002 cheap LNG deal with China

Vice President Jusuf Kalla's weekend trip to Beijing has led to promises to renegotiate a controversial 2002 deal to export LNG to China at a price far below market value.

After a Sunday meeting with Chinese Vice President Xi Jinping, Kalla said the two had agreed to renegotiate a 2002 contract to supply liquefied natural gas (LNG) from Indonesia's Tangguh field in Papua to Fujian province.

"In principle they have understood and received (our proposal for renegotiation) well. The two countries will set up a team to further discuss the issue," said Kalla after meeting Xi as reported by Antara.

"If we compare the LNG Tangguh contract signed in 2002 with today's (prices), the (contract) price is far lower. That's why we want to talk about the contract again," he said.

Kalla believed the 25-year contract for LNG export to China, made during the administration of president Megawati Soekarnoputri, would lead Indonesia to high losses once the export begins next year.

Under the contract, according to Kalla, the price of LNG had been pegged at US$2.40 per million British thermal units (mmbtu) regardless of any increase in crude oil prices.

At present the international LNG price is around $20 per mmbtu.

The LNG price at the time of the contract's signing was based on a crude oil price of $20 per barrel.

The Chinese government had earlier agreed to raise the price to $3.80 per mmbtu but the Indonesian government refused the offer, saying it was still too low.

Analysts have repeatedly criticized the contract, calling it foolhardy to assume the world oil price would remain at 2002 levels.

Kalla had demanded the House of Representatives investigate the inking of the contract for irregularities, calling it the country's most bungled LNG contract ever.

"The House must investigate this (through the ongoing inquiry session). This is the most devastating contract ever made, and it is the worst," said Kalla, who is also chairman of the Golkar Party, which has the majority of seats in the House.

Energy and Mineral Resources Minister Purnomo Yusgiantoro, who held the same post during the Megawati administration, played a key role in the 2002 negotiation with the Chinese government.

President Susilo Bambang Yudhoyono, who was the Energy and Mineral Resources Minister during then president Abdurrahman Wahid's administration in 2000, was also actively involved in trying to sell the gas to China.

The operation of the Tangguh LNG plant is led by BP Plc, Europe's largest oil and gas company, and will start supplying 2.6 million tons of LNG annually to China's Fujian province.

Located in the Berau-Bintuni region, the Tangguh plant is expected to produce 7 million tons per annum in the first phase of production scheduled in 2009. Gas fields, which will feed the plant, have proven reserves of 14.4 trillion cubic feet.

Korea Gas Corp has recently agreed to buy Tangguh LNG at the record price of $20 per mmbtu.

Buyers of the LNG also include the United States company Sempra Energy LNG Corp, South Korea's steelmaker POSCO and power firm K. Power.

From : The Jakarta Post

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Wednesday, August 13, 2008

Goverment may set oil price at $130 in 2009 state budget

The government may assume an oil price of US$130 for the 2009 state budget, to be delivered before the House of Representatives by President Susilo Bambang Yudhoyono on Aug. 16.

"We realize that oil prices are hard to predict, so we consider it (oil price of $130 per barrel) a valid estimate," director general of budgetary affairs at the Finance Ministry, Anny Ratnawati, said Friday.

The price of crude oil dropped on Friday to $117.70 per barrel at the New York Mercantile Exchange, after reaching a record high of $147.27 on July 11, Bloomberg reported. The price of oil has fallen 5.6 percent this week.

Analysts have said the price of crude oil may fall again next week because of slower demand.

The assumption in the budget is lower than that announced on July 22 when the government said the Indonesia Crude Price -- the country's benchmark oil price -- would be set at $140 per barrel.

As in previous years, the President will deliver the state address and the government's statements on the 2009 state budget bill on Aug. 16, the day before Independence Day.

The government was forced to revise the state budget early this year as soaring oil prices stretched the budget. It then raised subsidized fuel prices on May 24 by an average 28.7 percent to save the budget.

The fuel price increases pushed year-on-year inflation up to 11.03 percent in June and 11.7 percent in July. In May, year-on-year inflation stood at 10.38 percent.

Yet the economy still managed to grow in the first semester by about 6.3 percent thanks to robust consumption and investment, according to government estimates.

Official figures on the first semester economic growth will be released by the Central Statistics Agency (BPS) on Aug. 15.

Because of high inflation, the central bank has raised its benchmark interest rate four times since May by a total of 25 basis points, bringing it to 9 percent in August.

Analysts have said the central bank is likely to raise the rate to 9.5 percent by the end of 2008.

Boediono, the central bank governor, said Friday that inflation, triggered by the fuel price increases, had peaked in July.

"We expect to bring inflation down to between 6.5 percent and 7.5 percent in 2009," Boediono said.

Boediono also said the central bank would maintain the value of the rupiah against the dollar at an acceptable level and absorb excess liquidity to curb inflation.

The rupiah weakened 0.8 percent to 9,170 per dollar, Bloomberg reported. The currency declined 0.8 percent against the dollar this week.

High interest rates could dampen demand for bank lending and slow down economic activity.

Source : The Jakarta Post, Sat, 08/09/2008

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