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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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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Regional Development

LAW No. 22 of 1999 on Regional Administration was sanctioned in the sequel of the Peoples Consultative Assembly Decree No. XV/MPR/1998. It enables extensive, concrete, and responsible implementation of regional autonomy, based on the principles of democracy, peoples participation, equality and justice, as well as the potentials and plurality in the provinces of the Unitary State of Indonesia Law No. 25 of 1999 on Financial sharing between the Provincial and Central Government was promulgated to guide the regional governments in performing their task.

Regional Development Budget

Regional development has a budget allocation of Rp 3,362.4 billion that will be directed to development activities in support of regional capacity improvement, regional development, and urban and rural settlement development. It is also for activities on community empowerment in effort of poverty alleviation and local economic development. The budget is allocated to prepare resettlement of refugees and the local population who have given up their land for refugees, economic, social and culture empowerment for transmigrants and refugees, as well as to cope with regional problems and development acceleration to the regions in eastern Indonesia

Balance Fund

Since 2001, with the initiation of regional autonomy and fiscal decentralization, the transfer of funds from the State budget to the regions are allocated in the form of balance fund. This is to ascertain the source of funding for the Regional Budget, and to reduce the difference of interregional fiscal capacity.

In fiscal year 2002, the Government made improvements in the legal regulation concerning balance fund formulation. With the increase of domestic revenue, in the year 2002, the allocation of balance fund to the regions will be Rp. 90.3 trillion.

In the previous year of 2001, the allocation of balance fund was Rp. 81.5 trillion or 5.6% to the Gross Domestic Product (GDP), consisting of Profit Sharing Fund 1.4% to GDP, Public Allocation Fund 4.1% to the GDP and Special Allocation Fund 0.05% to GDP.

The share of state revenue for regional administrations through the State Budget of the fiscal year 1999/2000 and 2000 were only revenues derived from the taxes sector namely Tax on Land and Building (PBB), and Tax on Land and Building Rights (BPHTB). Revenues from non-oil and non-gas natural resources, especially forestry and general mining have actually already been shared with the regional administrations and technical ministers through the mechanism of direct remuneration by entrepreneurs of concerned sectors.

Profit Sharing Fund

From the entire allocation of balance fund, the transfer of profit sharing fund in fiscal year 2002 was targeted at Rp. 23.2 trillion, which increased by 14.3% from the 2001 profit sharing fund. The ratio against GDP was 1.4%. Its increase resulted from taxes, an increase in taxes for about 39.5%, and profit sharing fund from natural gas and general mining natural resources about 18.4% and 19.7% respectively. On the contrary, the allocation for the non-tax profit sharing fund originating from oil and forestry natural resources decreased by 16.9% and 20.0% respectively from the 2001 allocation.

According to Law No. 25 of 1999 and Government Regulation No. 104 of 2000, the allocation from profit sharing fund of oil and gas for the regional administration was decided at 15% and 30% respectively from the revenue after taxes. In line with the promulgation of Law on Nanggroe Aceh Darussalam (NAD), the allocation of profit sharing fund from oil and gas for NAD will be added by 55% and 40% respectively, so that each allocation will reach 70% after taxes. The ratio of the profit sharing funds will be effective eight years starting from 2002. On the ninth year the ratio will change to 50% each from the revenues, after taxes.

Public Allocation Fund

According to Chapter 7 of Law No. 25 of 1999 on the Ratio of Budget between the National and Provincial Governments, the Public Allocation Fund is decided at minimally 25% from net domestic revenue, which is domestic revenue minus profit sharing fund and Special Allocation Fund, derived from reforestation funds.

The public allocation fund is made available in effort to create equal balance in the regions, with consideration that the regional governments have different revenue capacities and potential. In other words, the public allocation fund has the task to cope with the interregional horizontal balance. For better result of the efforts to create equal balance, in fiscal year 2002, the Government is evaluating the 2001 formulation of the public allocation fund. Improvement is made in the variables of fiscal needs and fiscal capacity. Regional fiscal needs include population, extent of area, population density, building material price index and poverty gap. The variable of regional fiscal potential include Gross Domestic Regional Product (PDRB) of industry and services as well as natural resources profit sharing fund, PBB, BPHTB and Personal Income Tax (PPh).

For fiscal year 2002 transferring to the public allocation fund for the regional government was projected at Rp66.3 trillion or 73.4% from total balance fund. Provincial governments will receive 10% of the amount which is Rp6.6 billion, approximately 0.4% to the GDP, while the Regency/City government will receive all of the 90% which is Rp.59.7 trillion, or 3.5% to the GDP.

(Source: Indonesia 2002, An Official Handbook, NationalInformation Agency of theRepublic of Indonesia)

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