FINANCE INDONESIA

Senin, 03 Oktober 2011

Market Against Coal Contract Renegotiation

The market is expected to respond negatively to Indonesia’s program renegotiating coal mining contracts, analysts say.

The contract renegotiation, which was supposed to be completed after Law Number 4 Year 2009 on Mineral and Coal Mining was enacted, will reduce coal mining areas and export market shares.

Reza Priyambada, Managing Research Head of PT Indosurya Asset Management, added that Coal Contracts of Work (PKP2B) holders sell most of their coal in the export market as demand from China and India far exceed domestic demand. China and India are aggressively setting up new power plants.

“There must be a win-win solution,“ Reza said.

China is currently the world’s largest coal importer with Indonesia as one of its major suppliers. The country in 2010, as Bloomberg reported, imported 165 million tons, while Indonesia met up to 55 million tons, or a third, of the total.

First Generation PKP2B Holders Disagree

Based on data from the Ministry of Energy and Mineral Resources, 67 PKP2B holders have agreed to adjust the clauses in their contract to Law Number 4 Year 2009, but the holders which endorsed their PKP2B contracts in 1981-1990 (or the first-generation PKP2B holders) say they are against it.

Seven of the nine first-generation PKP2B holders are PT Adaro Indonesia, (a unit of PT Adaro Energy Tbk /ADRO), PT Kideco Jaya Agung (a unit of PT Indika Energy Tbk /INDY), PT Arutmin Indonesia and PT Kaltim Prima Coal (units of PT Bumi Resources Tbk /BUMI), PT Tanito Harum (a unit of PT Harum Energy Tbk/ HRUM), PT Berau Coal (a unit of PT Berau Coal Energy Tbk /BRAU) and PT Indominco Mandiri (a unit of PT Indo Tambang Megahraya Tbk /ITMG).

Bambang Gatot Aryono, Director of Coal Business of the Ministry of Energy and Mineral Resources, said that the first-generation PKP2B holders did not agree on the revision of the six clauses. The clauses pertain to mining work areas, contract extensions, royalties paid to the State, the obligation to build a smelter facility, divestment obligation, and the obligation to use domestic materials and services.

Renegotiation Difficult to Achieve

Supriatna Suhala, Executive Director of the Indonesian Coal Mining Association, added that the first-generation PKP2B holders are subject to a 45 percent mining tax, compared to only 25 percent which other PKP2B holders must pay.

The association said that the government must first readjust their tax to 25 percent. Supriatna added that first-generation PKP2B holders must also pay a royalty of 13.5 percent, compared to just 5 percent which other PKP2B holders pay.

The association also says that clauses on providing value added and work area adjustments are difficult. There are no proven technologies that can upgrade the calorific value of coal. Moreover, adjusting their work areas to conform to Law Number 4 Year 2009 will only pull down the share price of coal producers, which will consequently make it harder for them to obtain loans as their assets would have declined.

“The ideal total work area is 70 thousand hectares, for explorations, production and CSR programs,” Supriatna said.

The IFT Research Department estimates that publicly-listed coal producers are faring better than other top sectors, including the banking sector.

Listed coal producers achieved a 45.29 percent first-half growth year-on-year (YOY). Combined operating and net profit climbed 120.59 and 157.79 percent YOY. The positive performance was attributable to the two-fold increase of average coal price, from US$ 60 to US$ 120 per ton.

Market Against Coal Contract Renegotiation

The market is expected to respond negatively to Indonesia’s program renegotiating coal mining contracts, analysts say.

The contract renegotiation, which was supposed to be completed after Law Number 4 Year 2009 on Mineral and Coal Mining was enacted, will reduce coal mining areas and export market shares.

“There must be a win-win solution,“ Reza said.

First Generation PKP2B Holders Disagree

Renegotiation Difficult to Achieve

“The ideal total work area is 70 thousand hectares, for explorations, production and CSR programs,” Supriatna said.

The IFT Research Department estimates that publicly-listed coal producers are faring better than other top sectors, including the banking sector.

Musim Mas Invests US$ 860 M, Permata Hijau Rp 2 T in Palm Oil

Musim Mas Group, a palm oil processing company, plans to invest US$ 860 million to build palm oil mills. This plan is in line with the development of the national palm oil industry from upstream to downstream. (IFT/DINUL MUBAROK)

BEKASI (IFT) - Musim Mas Group, a palm oil processing company, plans to invest US$ 860 million to build palm oil mills. This plan is in line with the development of the national palm oil industry from upstream to downstream.

Suhardi, General Manager of Musim Mas Group, said the company plans to build palm oil mills in the next three years in several provinces.

"We will build a processing factory for oleo chemicals, located in North Sumatra, Riau and Central Kalimantan," said Suhardi. West Sumatra and Java are also target locations.

Permata Hijau Group, another palm oil processing company, will invest Rp 2 trillion in the course of three years to build an integrated palm oil processing factory near the Port of Belawan, North Sumatra. The factory will have an area of five to six hectares. Jhonny Virgo, Director of Permata Hijau Group, said construction will begin in early 2012.

"Our investment will build an oleo chemical factory to produce fatty acids, edible oil refinery and packaging plant," said Jhonny. He said Permata Hijau Group's investment plan is a positive impact on the Minister of Finance Regulation No. 128 on Establishment of Export Goods Subject to Exit Customs and Exit Customs Tariff for Palm Oil Exports.
The investment will increase the company’s capacity to 170 thousand tons per year from the previous 120 thousand tons. Currently, palm oil raw material requirement is 500 thousand tons per year.

"We have 20 thousand hectares of land to supply palm oil raw materials," he said.

In 2010, Indonesia was the largest palm oil producer in the world, with 23.2 million tons of palm oil, or 43.6 percent of the world’s total palm oil production of 53.2 million tons. A total of 54.6 percent of the national production was exported in raw form.

Land Expansion

MS Hidayat, Minister of Industry, said the government is committed to developing the palm oil industry from upstream to downstream. The government plans to increase palm oil land to 9.1 million hectares in 2020, from the previous 8.1 million hectares.

Hidayat estimated the production in 2020 to reach 40 million-42 million tons, with 60 percent of total production to be processed into finished products. .

Alexius Darmadi, President Director of PT Sumi Asih Oleochemical Industry, said the world's production capacity of oleo chemical is 8 million tons per year, while there are 7 million tons per year demand.

"With the development of the upstream to downstream industry, we expect that the supply can be absorbed by the domestic market," he said.

Indofood Controls 1.9% of Global Instant Noodle Market

Indofood controls around 74 to 77 percent of the national instant noodle market. (BLOOMBERG/DIMAS ARDIAN)

JAKARTA (IFT) - PT Indofood Sukses Makmur Tbk (INDF), food manufacturer, is the sixth largest instant noodle manufacturer in the world, according to Bloomberg data. Indofood, which relies on Indomie brand, controlled 1.9 percent global market share in 2009, and is estimated not to have much change in 2010.

The global instant noodle market grew an average of 9.7 percent CAGR during 2004-2009. In 2009, global instant noodle market value was US$ 34.8 billion. In the top ten of instant noodle manufacturers in the world, Japanese and Chinese manufacturers control 29.4 percent of market share. There are three Japanese and two Chinese manufacturers which controlled most of the global instant noodle market.

Nissin Food Holdings Co Ltd, a manufacturer from Japan, leads the global market with its brand, Nissin. Nissin Food’s market share reached 12.2 percent in 2009. Two other companies, Toyo Suisan Kaisha Ltd and Sanyo Foods Co Ltd were in second and third place with market shares of 8.7 percent and 7.9 percent, respectively.

In China, Baixiang Food Company produces Baixiang brand instant noodles, and Jin Mai Lang Food Co Ltd produces Hua Lang and Jin Mai Lang instant noodle brands. Baixiang controlled 2.6 percent, and Jin Mai Lang controlled 3.3 percent of global instant noodle market.

In Indonesia, Indofood controls around 74 to 77 percent of the national instant noodle market. Indofood’s market share is declining with tight competition in the domestic market with the entrance of Wings Group, ABC Group, PT Nissin Mas, PT Olagafood Industri Makanan dan Minuman, and PT Tiga Pilar Sejahtera Food Tbk (AISA) to the instant noodle business.

Indofood Sukses Makmur operates instant noodle production and distribution through its subsidiary, PT Indofood CBP Sukses Makmur Tbk (ICBP). The company’s instant noodle sales reached Rp 12.65 trillion (US$ 1.44 billion). In the first half of 2011, instant noodles sales were at Rp 6.55 trillion, up by 4.2 percent year-on-year (YOY). This division’s sales value also included sales from packaging division.

Indofood will invest Rp 700 billion to develop three instant noodle factories.

In a written statement to IFT, the company’s management explained that they are building an instant noodle factory in Jakarta to consolidate the two plants that has already operated in the area. The new factory is targeted to be completed and start operation in 2012. Indofood is also constructing an instant noodle factory in Palembang, which is targeted to operate in 2012. Another factory will be developed in Semarang, which will operate in 2014.

Indofood Sukses Makmur’s share price on Friday’s trade gained 4.1 percent to Rp 5,050. Indofood CBP’s share price also climbed by 4.2 percent to Rp 4,925.

Gov’t Optimistic Industrial Growth Reaches 6.5%

The government is optimistic that the 6.5 percent industry growth target in 2011 can be achieved, despite the global crisis in Europe and the United States. (BLOOMBERG/GRANT TURNER)

JAKARTA (IFT) - The government is optimistic that the 6.5 percent industry growth target in 2011 can be achieved, despite the global crisis in Europe and the United States.

MS Hidayat, Minister of Industry, said the target will not be revised because majority of the national industry is not exported to the United States and Europe. Moreover, the performance of manufacturing industries has not been affected by the global crisis.

In the second quarter of 2011, the accumulative growth of non-oil processing industry and gas reached 6.2 percent, higher than the 2010 growth of 5.09 percent. This is the highest growth for the last five years.

The highest growth achieved by the basic industries are iron and steel by 16.88 percent, followed by the textile industry, leather goods, and footwear by 9.22 percent, and the food industry, beverages, and tobacco by 6.73 percent. Manufacturing of transport equipment, machinery, and equipment also grew 6.58 percent. The paper and printing industry grew 4.04 percent, cement and nonmetallic mineral products grew 5.02 percent, and other goods grew 3.7 percent. The lowest growth is the wood products industry and forest products with 1.23 percent.

This year, the manufacturing industry targets growth of 6.1 percent. But based on the high growth of the first and second quarters, the government is optimistic that growth can reach an average of 6.5 percent until the end of the year.

These targets must be supported by conducive macroeconomic conditions, such as the exchange rate of rupiah against US dollar should be kept at Rp 8800 to Rp 8900 per dollar. On the other hand, the interest rate of Bank Indonesia must also be lowered to 6.5 percent from the current 6.75 percent, to encourage investments in the industrial sector.

Fauzi Ichsan, Managing Director and Senior Economist at Standard Chartered Bank, said the domestic industry should not be targeting new export markets in the parts of Europe, because they are not safe from the debt crisis and still dependent on trading activities with European Union countries.

According to Fauzi, exports to Asian countries have more potential. There will also be shifting of the world’s economy from the western countries to Asia.

Based on a review by Standard Chartered, the industry's most immune to crisis are the automotive industry, tobacco, cement, telecommunications, rental services, pharmaceutical, and packaging. These sectors are growing due to the gross domestic product growth and low global interest rates.

The crude palm oil industrial sector, coal, rubber, and cocoa are also experiencing direct benefits from the rise in global commodity prices. Apparel industry, textiles, shoes, toys, and downstream electronics are categorized as industries which are receding with or without free trade with China.

Unaffected

IFT Research Department assessed Indonesia's exports to Europe and the United States for commodities and energy sectors will remain, because the need is there, despite slower growth.

Nonetheless, Indonesia can further optimize exports in Asian markets, as economic growth in the world is dominated by Asia. Export markets of industrial products can be further developed in China, India, South Korea and Thailand.

Singapore's Property Market Targets Indonesia

Indonesians are among the three top foreign buyers of property in Singapore, particularly luxury apartments. (IST) JAKARTA (IFT) - Indonesia is now the target market of Singapore’s property developers, among them Raffles Quay Asset Management, a property company developing and marketing the Marina Bay Financial Center project in Singapore.

"About 30-40 percent of Marina Bay Residences and Marina Bay Suites’ prospective buyers are foreigners. Most are Indonesian citizens," said Lester Lim, Head of Marketing Communication of Raffles Quay Asset Management.

Thomas Tan, Head of Residential Marketing of Raffles Quay Asset Management, said the Indonesians choose Singapore because of the country’s political and economic stability. Interest rates in Singapore are also low, in the range of one percent, while rental yield is around three percent per year.

The property investment climate in the Asia Pacific region also encourages competition. The Marina Bay area has been set by the Singaporean government as the new development area in the city-state.

The Marina Bay Financial Center spans an area of more than 278 thousand square meters, costing S$ 4.5 billion (US$ 3.44 billion)," said Lim.

The first phase of construction included office Tower 1 and Tower 2, the Marina Bay Residences, as well as some parts of the mall. Tower 1 consists of 33 floors and Tower 2 has 50 floors. Marina Bay Residences is comprised of 428 units, 80 percent of which are already inhabited. The construction of phase one was completed in 2010.

The construction of phase two includes the Tower 3 office building (46 floors), the Marina Bay Suites apartments with 221 units, as well as the development of malls. The mall’s total area is more than 16 thousand square meters. Construction of the second phase is still ongoing and is targeted for completion in 2013.

According to Thomas, of the Marina Bay Suites' 221 units, 146 units are already sold. Each apartment unit is priced in the range of S$ 3.5 million to S$ 9 million. Meanwhile, 98 percent of the mall's first phase area has already been absorbed. For the second phase of the mall, absorption has reached 90 percent.

This area will have direct access to the mass rapid transit (MRT) station and other commercial areas around Marina Bay.

Based on data from the Far East Organization, one of Singapore’s property companies, Indonesians are among the three top foreign buyers of property in Singapore, particularly luxury apartments. The majority of these Indonesians spend US$ 1.2 million to US$ 4.2 million (Rp 10.2 billion to Rp 35.7 billion) per unit.

Data from the Urban Redevelopment Authority of Singapore also showed that 1,706 Indonesians purchased private homes in Singapore last year.

Ali Hanafia Lijaya, a Property Observer of Century21 Indonesia, assessed that the Asian market is still more promising than Europe’s, so it is not surprising that many Indonesians are purchasing properties in Singapore. According to him, the level of safety and comfort the country offers are the main reasons for the choice.

Mitsubishi Spearheads Coal Liquefaction in Sumatera

Mitsubishi Heavy Industries (MHI) Ltd. and Mitsubishi Corp. from Japan are working with the Indonesian government to process low-quality coal in Sumatra, converting them as substitute for natural gas (coal liquefaction). (IFT/DINUL MUBAROK)

JAKARTA (IFT) - Mitsubishi Heavy Industries (MHI) Ltd. and Mitsubishi Corp. from Japan are working with the Indonesian government to process low-quality coal in Sumatra, converting them as substitute for natural gas (coal liquefaction). Both companies said that a joint feasibility study will soon be conducted and completed by March 2012.

The Mainichi Daily News reported last weekend that gas produced from low quality coal in Sumatra will be delivered to Java using pipes. A Substitute Natural Gas (SNG) refinery is scheduled to begin operations in 2017.

In a written statement on the company’s official website, the Mitsubishi Group said that Indonesia has plenty of coal reserves with high moisture and little energy, which is difficult to utilize. On the other hand, Indonesia, with a growing economy, is eager to develop this type of coal as energy sources for production is dwindling.

Satya W. Yudha, Member of Commission VII of the House of Representatives, welcomes coal liquefaction. "Japanese investors must consider domestic needs; not only focus on exports and then not fulfilling the domestic demand for gas," he said.

Kurtubi, a mining analyst, sees that the government's cooperation with Mitsubishi as a positive move because whatever energy source Indonesia owns, it must be developed. Moreover, the country has a high potential of CBM or coal.

Priyo Pribadi Soemarno, a mining analyst, meanwhile, said that Indonesia cannot expect much in the development of coal liquefaction because of the large investment. Investors are not interested in developing the technology because there is no guarantee that the market will take up the production.