The stock market slowdown and drying up of banking liquidity may force mining firms to reduce their spending on exploration, causing commodity scarcity during the next four to five years, an official and a business association said on Wednesday.

Simon Felix Sembiring, the senior advisor for finance and economy at the Energy and Mineral Resources Ministry, said that firms would face difficulties in seeking financial resources from the market and banks for their expansion.

"The stock market has been a major financing source for mining firms to get cheap funds that are usually used for exploration investment," said Simon, who is the ministry's former director general of mining.

"Since we will not have an expansive exploration activity, there will be no new reserves discovered. As a result, there will be a shortage in mining commodities for the next four to five years that will eventually drive up the prices," he said.

The Indonesia Stock Exchange (IDX) has been haunted by the fear of global recession, losing 50 percent of its value since January this year.

Supriatna Suhala, the executive director for the Indonesian Coal Mining Association, said that havoc in other stock markets would exacerbate conditions for companies seeking funds from outside as well as for those seeking to invest in new mining projects and concerns.

The new comers cannot go public in Indonesia because the stock market regulation requires companies to gain profits for three consecutive years locally before selling their shares to the public, according to Supriatna.

"Most of the time, new and small coal producers form joint ventures with overseas firms so that they can be listed on the international bourse," he said.

Several companies providing mining construction services have even halted their operations.

Two geothermal power plants with a total capacity of 122 megawatts (MW) could be in operation by next year to help ease the country's power supply shortage.

Sugiharto Harsoprayitno, the Energy and Mineral Resources Ministry's director of geothermal utilization, named the two plants as the Wayang Windu plant's unit 2 in West Java, with a capacity of 120 MW, and the Sibayak plant in North Sumatra, with a capacity of 2×6 MW.

"Important equipment, such as turbines, have arrived at the sites, so we are optimistic the plants can begin operating next year," he said.

The government has set a target for the Kamojang plant in West Java to start operating by 2009, but the project is caught up in a wrangle over a permit to operate in a protected forest.

Indonesia has the world's largest geothermal reserves, with an estimated capacity of up to 27,000 MW of electricity — equal to around 40 percent of the world's geothermal reserves.

However, Indonesia's 18 operational geothermal plants only produce a combined 1,050 MW.

These 18 power plants include: Salak in West Java (375 MW), Darajat in West Java (255 MW), Kamojang in West Java (200MW), Wayang Windu in West Java (110 MW), Dieng in Central Java (60 MW), Lahendong in North Sulawesi(40 MW), and Sibayak in North Sumatra (12 MW).

The government has said geothermal power will contribute 30 percent to its second 10,000 MW power plant construction program. However, investors have demanded a revision of the government's policy on pricing.

Meanwhile, PT Pertamina Geothermal Energy, a subsidiary of state oil and gas company PT Pertamina, is also planning to have the Lahendong geothermal power plant up and running by the end of 2008.

The plant will have a total capacity of 60 MW, geothermal energy director Abadi Poernomo said.

Sugiharto said the government would soon open bidding for geothermal utilization at 11 sites.

However, he said he doubted the government target to utilize 3,000 MW power from geothermal plants by the end of 2011 would be reached, because of the long delay in pricing negotiations with state power company PT PLN.

Investors developing geothermal sites in Indonesia must sell the electricity to PLN.

To help bolster the competitiveness of domestic industries, the finance ministry has scrapped import duties on several raw materials for up to eleven industries, including shipbuilding and automotive components businesses.

In a statement issued late last Friday, the ministry announced that the policy could have generated slightly more than Rp 1 trillion (US$106 million) in state revenue in the last three months of the year.

"The incentive is given both to guarantee supply for domestic demand of consumer goods and to strengthen our real sector, in particular general and relevant industries," the ministry's head of public relations Samsuar Said said.

Raw materials exempted from duty include those that are not produced domestically, or in insufficient volume.

The eleven industries are: The airline, cruise, coal-fired power generator, shipbuilding, heavy equipment, automotive components, infuse, sorbitol, dairy processing, electronic components, and cold-rolled coil industries.

Samsuar said the industries were chosen because their products were widely consumed domestically and because they employed large numbers of workers.

The incentive is effective immediately and will be evaluated in three-months.

The ministry has also scrapped a 10-percent tax on luxury goods for electronic products, in particular certain types of televisions, laundry machines and cameras.

The policy applies to TVs smaller than 21 inches, washing machines with a capacity of between six and 10 kilograms of clothes and cameras priced below Rp 2 million.

"All others are still subject to the tax, as the prices are still not affordable for most middle class consumers in the country," Samsuar said.

Anggito Abimanyu, head of fiscal policy at the finance ministry, said the cut in luxury tax and import duties was aimed to "boost the real sector, reduce business costs."

This is also expected to limit imports of unimportant goods, he added. "If producers can purchase domestic goods, they'd better buy domestic goods."

Indonesian Chamber of Commerce and Industry vice chairman for manufacturing Rahmat Gobel said the business community appreciated the policies, which he said would help lower production costs and eventually selling prices.

"Production costs will be cheaper and the producers will be able to boost their production. This will also help us eradicate illegally imported products," he said.

U.S.-based energy giant Chevron Corp. has been approved by the Indonesian government to develop gas reserves in five deep-water fields off East Kalimantan at a projected total cost of US$6.97 billion.

"The government has approved the POD (plan of development) and the company may now start operations," director general for oil and gas at the Energy and Mineral Resources Ministry Evita H. Legowo said Thursday.

Energy and Mineral Resources Minister Purnomo Yusgiantoro signed the approval on Aug 29, a media statement from the ministry shows.

Three of the fields — Gandang, Gendalo, and Maha — lie in a concession of Chevron Ganal Ltd., while the remaining two — Ranggas and Gehem — lie in a concession of Chevron Rapak Ltd.

According to Bloomberg, the entire venture may pump a maximum of close to one billion cubic feet of gas a day, or equivalent to 13 percent of Indonesia's current output.

"This will be the country's first deep-sea drilling project," said Edy Hermantoro, upstream director at the ministry, adding that parts of the field lay in concession areas operated separately by Chevron and Rome-based Eni Spa.

Therefore, the POD in the area will integrate and involve both companies, he said.

Edy said Chevron and Eni may spend $6.97 billion on the project, of which $2.19 billion may be spent on developing wells and the rest on the construction of a floating processing unit and other facilities, Bloomberg reported.

The project will increase gas supply to a liquefied natural gas (LNG) plant in Bontang in East Kalimantan Province, which will export 75 percent of its production and sell the rest domestically, Edy said.

Chevron's corporate communications manager, Santi Manuhutu, said the company had not officially received a letter of approval.

"Chevron is waiting for the official government approval of the deepwater gas project," she said in a statement sent via e-mail.

The amount of time needed to develop the fields will be dependent on government approvals, market conditions and the achievement of key project milestones, she added.

Chevron holds an 80 percent operated interest in Gehem and Gendalo fields, she said.

State power company PT Perusahaan Listrik Negara (PLN) is accelerating its plan to acquire coal mines to ensure supply for its power plants.

The company is already in talks with fifteen potential mining companies.

PLN's chief commissioner, Al Hilal Hamdi, said the negotiations were being led by PLN's newly set up subsidiary PT PLN Batubara.

"The coal firms are operating in Sumatra and Kalimantan," said Al Hilal, without elaborating on the sizes of the companies.

"We expect the negotiations can be completed soon and that coal will soon begin being supplied to PLN," he said.

PLN president director Fahmi Mochtar said PLN had the financial capability to acquire private companies and to partly or fully purchase publicly listed firms.

"Some of these companies have large mining areas that are yet to be exploited. We will try to tap that advantage."

"By buying stakes of coal companies, PLN will get guarantee its supply," Fahmi said.

PLN has invested between Rp 1 trillion (US$109 million) and Rp 1.5 trillion to establish PLN Batubara.

Al Hilal said PLN Batubara would also create four coal shipment terminals to avoid supply delays.

"We have a plan to build terminals in South Kalimantan, East Kalimantan, Sulawesi and in Bangka and Belitung," he said.

The terminals will have the capacity to blend coal of different calorie values.

PLN will also spend Rp 70 billion to acquire shipping company PT Bahtera Adiguna to assist in the transportation of its coal.

PLN is currently the biggest single domestic consumer of coal, with consumption expected to reach 34 million tons this year, 43 million tons in 2009 and 82 million tons in 2010.

The soaring coal demand will be driven primarily by a government project to secure 10,000 megawatts by 2011 through the construction of coal-fired power plants.

As part of the project, PLN will provide 10 coal-fired power plants to secure electricity supply on the Java and Bali power grid, which has seen demand jump by an average 6.72 percent annually in recent years.

Fachmi told The Jakarta Post last month that PLN's coal supply had in the past been disrupted by supply shortages in the periods just before its supply contracts expired.

"Often when the company opens a bidding, the offered prices by producers are always too expensive for us," he said.

State electricity firm PT Perusahaan Listrik Negara (PLN) plans to sell foreign currency-denominated bonds worth Rp 10 trillion (US$1.1 billion) this year, said president director Fahmi Mochtar on Thursday.

"We need this to finance PLN's operational cost," Fahmi said. The company also plans to sell rupiah-denominated bonds totaling Rp 3 trillion this year, he added.

He did not mention the specific timetable.

He said the planned bond issuance was not to finance PLN's ongoing massive project of building the 10,000-megawatt (MW) power plants.

Fahmi said the project would instead be financed with investment both from foreign and domestic banks.

The coal-fired power plants project was launched in 2006 to help the country avert a potentially devastating power crisis amid high consumption demand.

Fahmi said the project would need up to $8 billion in investment and PLN had so far gained a $5 billion commitment. He said PLN was in talks with several local and foreign banks for the remaining funds.

"BNP Paribas, Bank of China, China Exim Bank and China Development Bank are among investors who have expressed interest in this project," Fahmi said.

As the 10 power plants under the project will be powered with coal, PLN plans to acquire shipping company PT Bahtera Adiguna.

"We plan to buy Bahtera to secure our coal supply. We are engaged in discussions with them," Fahmi said, saying that the acquisition would cost around Rp 70 billion.

Most of the plants will be operational in 2010.

PLN is striving to use more coal to fire its power plants to gradually replace oil, which is more expensive. PLN coal consumption is expected to reach 34 million tons this year, 43 million tons in 2009 and 82 million tons in 2010.

Korea Gas Corp (Kogas) has agreed to buy liquefied natural gas (LNG) from the Tangguh project at the record price of US$20 per million British thermal units (mmbtu).

"We haven't signed a legal document yet, but we have agreed on the price," said BPMigas' deputy of operations, Eddy Purwanto Wednesday, adding that this price was the highest on any existing gas field, including Arun and Bontang.

The price, however, is based on the Japan Crude Cocktail (JCC) oil price of US$120 per barrel, Eddy said.

Eddy refused to specify the volume of LNG that KOGAS would buy from Tangguh, saying this was still being negotiated. Kogas would start buying the LNG from 2010 to 2012, he said.

Tangguh is a massive project, exploiting gas fields in the mountainous Bintuni Bay area in Papua, with total proven gas reserves of 14.4 trillion cubic feet.

Buyers of Tangguh's LNG include the United States company Sempra Energy LNG Corp, China's Fujian Province and South Korea's steel maker POSCO, as well as power firm K. Power.

Eddy said that the LNG that Kogas was to purchase was originally intended for Sempra Energy LNG Corp. In 2004, multinational energy giant BP, the Tangguh project operator, signed a sales agreement with Sempra to supply up to 3.7 million tons per year of LNG.

Energy Minister Purnomo Yusgiantoro said in May 2007 that under the Sempra contract, BP may divert up to 50 percent of LNG designated to Sempra to other markets.

Eddy said this diversion was part of government and BP efforts to get better LNG prices and to increase the total value of the Tangguh project.

Unlike Asian LNG buyers, Sempra is not an end user but a trader. The Tangguh LNG price for Sempra is based on the US gas market price at the time when the gas is shipped.

Fathor Rahman, BPMigas Head of Oil and Gas Market Development, said that although the LNG price for KOGAS could fall, due to fluctuations in the JCC, it was unlikely to fall lower than the price for Sempra.

"Only in special cases, like the aftermath of the Katrina storm, might the LNG price for Sempra get higher than that for Kogas," Fathor said.

He added that if this extraordinary situation occurred, Kogas had agreed to pay higher, following the United States price-lead.

Eddy said the Sempra diversion would increase the average LNG price from the Tangguh Project to US$ 8.21 per mmbtu, up from US$ 5.76 per mmbtu before the diversion, assuming the JCC price at US$ 120 per barrel. This diversion would potentially increase the contract value of the Tangguh project by US$ 19.7 billion, he said.

The government has been heavily criticized by analysts for selling Tangguh's LNG at very low prices. In 2002, the LNG price was based on a ceiling oil price of $25 per barrel. According to energy analyst Kurtubi, with this ceiling price, the price of Tangguh's LNG would be only $2.67 per mmbtu.

Later on in 2006, the government and buyers increased the ceiling oil price to US$38 per barrel. Kurtubi said that with this new ceiling oil price, the Tangguh's LNG would be worth only $3.345 per mmbtu, lower than Badak and Arun's LNG with prices of between $5.7 per mmbtu and $6.08 mmbtu.

Kurtubi urged the government to renegotiate the Tangguh's LNG price. He said that the LNG price was supposed to be based on international crude oil prices without ceilings or limitations.

Eddy said that the lower LNG price happened because it was a buyers market when the commitment was made. "The price was the best that we could get. At that time no one, including the analyst, predicted the crude price would skyrocket," Eddy said.

The government will impose a new regulation in October demanding manufacturing companies use at least 2.5 percent biofuel in their fuel consumption to reduce their dependency on fossil fuel.

"The regulation is expected to be issued in September and will come into effect one month after that," said the national team for biofuel development head, Al Hilal Hamdi, in a hearing with law makers in Jakarta on Wednesday.

Implementation of the regulation, he said, would be carried out in two phases. In the first phase, the law will apply to Java and Sumatra. It will apply to the rest of the islands across the country in the second phase.

Al Hilal said the upcoming regulation would also give a degree of certainty for biofuel producers through the creation of demand for their products such as biodiesel and bioethanol.

To prepare for the implementation, he said, the government would cooperate with fuel producer-retailers such as Pertamina, Shell and Petronas to work on securing the supply of biofuel.

"These companies will blend the 2.5 percent biodiesel fuel with diesel fuel before they sell it to the industries," Al Hilal said.

According to team member Evita H. Legowo, the policy will not hurt manufacturing companies as the price of mixed diesel-biodiesel fuel per liter will not be higher than pure diesel.

"The main purpose of the regulation is not to provide a cheaper fuel source, but to diversify sources of energy and to support the biofuel industry," she said.

Al Hilal said the committee expected the minimum biofuel content requirement for industries would continue to increase in the future.

As of June 2008, the country's annual bioethanol production capacity reached 192,349 kiloliters a year. This figure is expected to increase to 4 million kiloliters in 2010.

Based on production capacity by the end of last month, the country's annual biofuel production is currently at 2 million kiloliters and is expected to grow to 5 million in 2010.

As of March 2008, the investment commitment for the bio energy development reached Rp 31.47 trillion and Rp 246.14 billion of which have came into realization.

Indonesia has produced two types of biofuel-bioethanol. One is made from cassava, sugarcane and sweet sorghum. And the other, biodiesel, is made from castor and crude palm oil.

Biofuel is currently being sold to retail customers. State oil and gas company PT Pertamina has 279 petrol stations selling biofuel. The state power firm PT PLN also has used biofuel to power nine of its power stations. These nine stations have a total capacity of 96 megawatt.

Also speaking at the hearing, lawmaker Burhanuddin Bur Maras expressed his concern about the biofuel development. He said that the usage of the crude palm oil for biofuel materials would push the price of the commodity further up and lead to overall food price inflation.

The government will increase supervision of subsidized LPG distribution over fears the recent price increases in non-subsidized LPG might encourage ineligible people to unfairly enjoy subsidies, a minister says.

"Supervision is important in this case. The 12-kilogram LPG (liquefied petroleum gas) tanks are designated for the middle class.

"It will be a violation if these people switch to consume the subsidized three-kg cylinders, which are meant for the lower class," Energy and Mineral Resources Minister Purnomo Yusgiantoro said Thursday.

Of Indonesia's total annual LPG consumption of 1.1 million tons, 13 percent is packaged in 50-kg tanks, 75 percent in 12-kg tanks and the remaining in three-kg tanks.

The government only subsidizes the three-kg LPG tanks.

Purnomo said downstream Oil and Gas Regulator BPH Migas and his ministry's director general for oil and gas would work together to increase supervision.

State oil and gas company PT Pertamina raised on July 1 the price of a 12-kg LPG cylinder by 23 percent to Rp 5,250 per kg from Rp 4,250 per kg. The price of a 12-kg LPG tank rose from Rp 51.000 to Rp 63.000.

Pertamina says the retail price hike for LPG was down to the rises in global LPG prices and the increasing operation and distribution costs caused by the rise in fuel prices.

The retail price for subsidized three-kg LPG is maintained at Rp 4.250 per kg. In September last year, Pertamina raised the price of a 50-kg LPG tank by 46 percent to Rp 6,200 per kg from Rp 4,250.

When contacted, BPH Migas said the supervision of LPG lay beyond its sphere of authority.

"The regulations stipulate that BPH Migas is responsible for supervising fuels, both subsidized and non-subsidized, and pipeline gas. Thus, supervision of LPG is beyond our domain," said Yugi Prayogo, acting chairman of BPH Migas.