Indonesia: Energy Highlights May 2006

SUMMARY :

Ø State electricity company PLN announced on May 16 that a consortium led by Japan's Marubeni Corp. won a tender to build and operate the 600 MW Cirebon powerproject.

Ø On May 22, PLN announced a plan to build 24 coal-fired power projects as part of its previously announced"crash program" to add 10,000 megawatts (MW) of generationcapacity over the next few years.

Ø On May 11, PLN's Cilegon Power Plant began to provide power to the Java-Bali grid. Ø Power shortages hit the Java-Bali grid again in May as a result of supply disruptions, fuel shortages and mechanical problems.

Ø State oil and gas company Pertamina raised the price of unsubsidized fuels in May due to high global prices.

Ø On May 20, Pertamina launched Indonesia's first biodiesel fuel.

Ø On May 22, Pertamina also signed four gas supply agreements with South Sumatra and West Java buyers.

Ø On May 2, the French company Eramet acquired Canada's Weda Bay Minerals, majority owner of the Halmahera nickel project in Maluku.

Ø On May 17, the government raised fertilizer prices by an average of 11 percent.

State electricity company PLN announced on May 16 that a consortium led by Japan's Marubeni Corp. won a tender to build and operate the 600 MW Cirebon power project. Other consortium members are South Korea's Komipo and local engineering firms Tripatra and Samptan. Eleven domestic and international companies reportedly participated in the tender competition, with Marubeni and India's Essar International Group making the shortlist. According to PLN, Marubeni's winning bid was USD 4.363 cents per kilowatt hour (kwh) compared with Essar's final offer of USD 4.402 cents per kwh. The project reportedly will cost USD 600 million and is targeted to come online in 2010.

On May 22, PLN announced a plan to build 24 coal-fired power projects as part of its previously announced "crash program" to add 10,000 megawatts (MW) of generation capacity to the national power grid over the next few years. PLN aims to build 10 power plants in Java and 14 outside Java, which together would provide an additional generation capacity of 7,140 MW. PLN is targeting all the projects for completion by 2009.

On May 11, PLN's Cilegon Power Plant began to provide power to the Java-Bali grid at an initial capacity of 60 MW. The combined cycle power plant is slated to come fully on-stream in December 2006 with a capacity of 740 MW. The Japan Bank for International Cooperation funded the plant construction through a reported USD 345 million loan. Gas supply for the plant comes from the China National Offshore Oil Corporation's (CNOOC) Offshore South East Sumatra Production Sharing Contract (PSC) under a 12 years contract signed in 2004. Cilegon is the second plant to come online in 2006 for the Java-Bali grid following the 600 MW Cilacap plant, which began operation in March. A third plant, the 1,200 MW Tanjung Jati B project, is scheduled to begin operation in June 2006.

Power shortages hit the Java-Bali grid again in May reportedly as a result of gas supply disruptions, fuel shortages and mechanical problems. Starting on May 19, pipeline leaks cut in half the flow of gas supplies from BP's Offshore North West Java (ONWJ) PSC to the Tanjung Priok and Muara Karang power plants in Jakarta. Tanjung Priok was forced to shut down one of its generators, lowering its operating capacity below 70 percent of normal levels. Consequently, PLN faced a 300 MW power deficit and the extra cost of buying diesel fuel to replace the missing gas feedstock. PLN says it expects the reduced gas supply to persist for at least the next few weeks until BP completes pipeline repair.

Diesel and fuel oil shortages worsened this month and effected operations at the Muara Tawar (Jakarta), Sragi (West Java), Tambak Lorok (Central Java), Grati, and Grissik (East Java) power plants. Intermittent shortages at these plants created a deficit of about 400 MW during the month. On May 23, Paiton Energy also halted operations of one of its 610 MW generators for one day due to an engine problem. PLN partially augmented the overall monthly deficit with new supply from Cilegon. PLN also made a special request to customers to conserve electricity during peak hours (6 pm to 10 pm). During May the Java-Bali grid had an average reserve margin of just 4.4 percent from an installed capacity of 18,683 MW. Fuel Market Update

State petroleum company Pertamina raised unsubsidized fuel prices in May by an average 6.4 percent, owing to a rise in global crude benchmarks. The company also reportedly halted kerosene imports in May due to increasing stocks and the resumption of processing at the Dumai refinery.

** Pertamax and Pertamax plus are unleaded gasoline fuel with 92 and 95 octane level respectively. Pertamina DEX is a Euro 2 standard diesel fuel. All fuels are available at regular retail outlets. Quoted prices are valid for Java Island.

In a sign of the beginning of competition in the retail fuel industry, on May 1 Pertamina announced it would sell its Pertamax and Pertamax Plus fuel at an approximate 13 percent discount- IDR 5,000 (USD 54 cents) and IDR 5,300 (USD 57 cents) respectively-at five retail fuel stations in the greater Jakarta area. The company said it took the decision due to the presence of direct competition from Shell or Petronas stations in those neighborhoods.

On May 20, Pertamina began selling the country's first biodiesel fuel, Bio-Solar, at selected fuel stations in Jakarta. Biosolar is also known as B-5 biofuel and contains 95 percent diesel fuel and five percent Fatty Acid Methyl Ester (FAME), which is derived from the processed extract of crude palm oil (CPO) or the seeds of Jatropha Curcas plants. Currently Pertamina sources its biodiesel supply from the Gresik, East Java plant of local chemical producer Eterindo Wahanatama. Pertamina is also developing its own biodiesel plant at the Balongan refinery, West Java. The company set the Biosolar price identical to regular subsidized diesel fuel price at IDR 4,300 (USD 47 cents) per liter.

On May 22, Pertamina signed four gas supply agreements with West Java and South Sumatra buyers. The agreements, which ranged from five to 10 years in duration, have a combined volume of 66.9 trillion british thermal units (TBTU) with a reported value of USD 181.6 million. During the same occasion, Indonesian gas producer EPIC Sengkang signed a Memorandum of Understanding (MOU) with state owned mining company PT Aneka Tambang (Antam) and Lapindo Brantas signed a MOU with Indogas Kriya Dwiguna.