Posts Tagged ‘indonesia’

Miners to benefit from change to Indonesian law

copper-miningUnder Indonesian law, foreign mining companies operating in the country are required to sell 51% of their local holdings back to the government after 5 years of commercial operation. However, Newmont (NYSE : NEM), will only be asked to relinquish 17% of its subsidiary, PT Newmont Nusa Tenggara (PTNNT), as 20% of this entity is already held by a local partner. An international arbitration panel on March 31 gave Newmont and minority partner Sumitomo Corp. a 180-day deadline in which to divest 17% of PTNNT to local buyers, ruling that the companies were in default of their contract of work for failing to meet divestiture schedules in 2006-2008.

With the Indonesian government estimating the total value of PTNNT at $4.9Bn , Newmont & Sumitomo are locked ina valuation battle with the governmet & local companies, who are keen to pick up a share in the companies gold & mining concerns. Some 10% of PTNNT is earmarked for regional governments in Sumbawa, the location of the company’s Batu Hijau copper and gold mine, and the central government will have first right of refusal on the rest of PTNNT.

“We are still discussing the pricing formula” for the stake in PTNNT, with other government departments” Bambang Setiawan, director general at the Department of Energy and Mineral Resources “the department is also conducting preliminary negotiations with Newmont over the sale of the unit as yet it is unclear when a deal might be reached.”

It’s not all grim news for Newmont though. This week, Indonesian officials met regards mining rights in areas of protected forest. As we have written before, (Indonesia the long road back), The country has vast natural resources that Indonesia is keen to exploit, using the above formula to develop modern facilities in the country. Now ministers are expected to pass a decree that will allow mining companies to carry out underground mining activities in areas of protected rainforest.

“The presidential decree will give legal basis so that underground mining is allowed in protected forest areas.The existing law only forbids open-pit mining in protected forest areas,”  said Setiawan.

Information from the mining & energy ministry show that Indonesia has mineable nickel reserves of 547 million tonnes, 112 million tonnes of bauxite and 43 million tonnes of copper,  tin stand at 336,911 tonnes, measured in terms of refined tin, while gold reserves were 4,341 tonnes,

Two other mining majors that will also look to profit from this law change are Rio Tinto (NYSE : RTP) & Freeport-McMoran (NYSE : FCX).

Rio Tinto is currently looking to develop a new nickel operation on the island of Sulawesi, Rio estimate that the mine could produce up to 46,000 tonnes of nickel metal a year, estimated investment costs stand at $2 Bn. Sulawesi is densely forested & the change in law should mean that the company can expand its operations significantly.

Meanwhile, Freeport-McMoran has been active in Indonesia for a much longer time. PT Freeport Indonesia has operated the Grasberg mining complex since the early 70’s, Grasberg is one of the world’s largest single producers of both copper and gold & as Freeport claims, contains the largest recoverable reserves of copper and the largest single gold reserve in the world. Grassberg will continue surface mining until 2015, at which time it will then begin sub-surface mining, according to Freeport’s website.

Indonesia looks to be well on the way to attracting large amounts of FDI into its commodity sector, providing an economic boost to local populations spread across this vast country. India & The Emirates have already committed to investing $4Bn into an aluminium smelting plant, with fully integrated power & logistics last year, with the relaxation of the rules governing mining concessions, the country could well benefit from China’s projected expansion.

Ups & downs in Vietnam

images155628_2nam2009 can be considered as a  special year for Vietnam & it’s economy as the country has now belonged to the World Trade Organisation (WTO) for two years, facing both opportunities for growth along with internal challenges & heralding a sea change as Vietnams markets are now open to foreign companies as never before. Foreign investors now have the opportunity to enter into Vietnam’s domestic markets & enjoy fairer treatment under law, service sectors such as banking & consumer retail are prime targets for 2009.

Vietnam attracted 1,171 new foreign direct investment (FDI) projects with a total registered capital of more than $60.2 Bn in 2008, tripling last year’s figure, according to the Foreign Investment Agency under the Ministry of Planning and Investment. Demonstrating that Vietnam remains attractive destination for foreign investors, Taiwan being the leader, with an estimated $19.6 Bn flowing into the fledgling tiger last year alone. Malayias & Korea both recently made hefty investments in gaining operational licences for retail operations in Shinhan Vietnam Bank & Hong Leong Vietnam Bank respectively. The SE Asian nation has one of the regions largest domestic market potentials, currently Vietnam is the worlds 13th most populous country, with a population of 82.6M, making it an attractive prospect for both domestic & foreign firms as the population achieves  financial liquidity.

India’s Tata Steel is committed to investing $5Bn in a new steel production plant having entered into a joint venture with Vietnam Steel Corporation and Vietnam Cement Industries for building the integrated steel mill in the Ha Tinh province. For the plant, the company requires 1,300 hectares of land. However bureaucratic holdups & intense competition for land rights have seen the projects first phase being pushed back to 2011. The Indian steel giant, through its wholly-owned subsidiary in Singapore, Tata Steel Global Holding Pte Ltd, will hold a 65 % stake in the joint venture, whilst also extending an equity holding of 30 per cent in Thach Khe Iron Ore mining project in Vietnam, allowing it to become the countrys first integrated steel maker. Korean competitor POSCO already has made investments of $1.2Bn project for building two rolling mills in the Phu My Industrial Park in Ba Ria-Vung Tau province near Ho Chi Minh City. The company is also building a private harbor on the site  to support the two plants and is carrying out feasibility studies for a stainless steel plant and an integrated steel mill in Vietnam.

Meanwhile, domestic steel firms are also booming, helped by a recent tarriff increase on imported steel billet and steel ingot, which was introduced in early December 2008.  According to the Vietnamese Ministry of Finance, “the adjustment of steel import tariffs is necessary to boost the domestic steel consumption and to ensure the stability of the country’s steel market as the current stockpiled steel in companies and manufacturers nationwide has reached  around 3 million tons.”

Thep Viet Steel Corp recently revealed plans to invest in Cambodia, it currently exports 5,000 tonnes of steel per month to Cambodia, which is reported to have large iron deposits, and Vietnamese companies have been granted concessions to explore for the mineral – a major feedstock for steel production. “Iron ore will be a big source of income if the country is able to utilise this natural resource,” CEO Tann Kin Vin said. Prime Minister Hun Sen last year called on foreign investment to take advantage of Cambodia’s iron resources.

In a similar story to Indonesia, Vietnam, which is the regions third largest oil producer,  enjoyed a boom year in 2008, mainly due to the large increases in commodity & oil prices, which saw The Vietnam National Oil and Gas Group, PetroVietnam (PVN), earn  total revenue of about $16.5 Bn in 2008. An increase of 31% over 2007. PVN contributed about $7.1Bn  to the state,  accounting for over 30% of the total state budget revenue.  However, due to lack of refining capacity, Vietnam imports most of its refined oil products. The company is seeking to gain supplies of up to 26.5 million tons of crude per annum in order to supply three proposed refineries in an effort to satisfy domestic demand.

“The company is willing to offer stakes in the refineries in exchange for long term crude contracts”, Tran Ngoc Canh, CEOP of PVN told reporters at the Gasex conference last year, “PVN could offer as much as 30% in each refinery under Vietnam law & more in special cases.” 

Late December, it appears that a “special case” has come to fruition, when PVN announced that it would give up to 49% equity in the Dung Quat oil refinery in exchange for prefernetial crude contracts. The $2.5-billion refinery, located in central Vietnam, has a designed capacity to process 130,000 barrels of crude oil a day and will be able to meet 30% of the country’s demand for petroleum products.In a seperate announcement PVN confirmed that BP will be signing a supply contract to provide up to 50% of the refinery requirements for the plant this week.

PetroVietnam is counting on new exploration projects to boost crude production as the ageing Bach Ho field has shown declining output for the last four years. Projects are currently underway on blocks such as Ca Ngu Vang, Phuong Dong & Si Va Tang alomg with further efforts in the South China Sea around the Spratly Islands. The Spratly project involves an international tangle, as both neighbours China & Malaysia claim sovereign rights in the area. Last year, China forced Exxon Mobil to cease exploration in the area, whilst BP pulled out of a JV with PVN in 2007, citing regional instability.

Meanwhile, PVN is eyeing overseas opportunities for investment & development, the country has interests in 16 foreign oil & gas projects, with 6 in Asia, 4 in Africa & the rest in America. In a joint venture with the Venezuelan Petroleum Corporation (CVP), Vietnam will look to invest $11.4Bn in a project to exploit and refine heavy oil in the Orinoco heavy oil belt in Venezuela. Once operational, the project will turn out up to 200,000 barrels a day, equivalent to 10 million tonnes of oil per year, oil pumped up by the JV will be refined on site into light oil by its own refining plant.

Also, following China National Patroleum Company – CNPC’s recent success in signing a reputed $3Bn contract with Iraq on the Ahdab oilfield, Vietnam is holding talks with the Iraqi oil ministry in attempts to revive a contract signed under the leadership of Saddam Hussein. PVN originally signed a deal with Iraq in 2002 to develop the Amra oilfield, with an estimated output of 80,000 barrels per day. The original deal was never implemented due to United Nations sanctions that followed Iraqs 1990 invasion of Kuwait.

According to Jason GW over at Frontier Markets in his recent, Dong losing its Ding , “the government estimates that the economy will grow by as much as 6.5% in 2009. But an IMF report last week forecasted growth of just 5%. Additionally, a report by Vietnam’s Bank for Investment and Development released this week concluded that the country would likely show a trade deficit of about $7 billion next year, which would lead the dong to fall 3.5 to 5% against the dollar.”

This is all very promising, however, from a personal point of view, concerns still remain regards the tangle of bureacracy that may overshadow the new “open” face of Vietnam for foreign companies & investors. Reports in local media complain that continued over investment in State owned enterprises (as much as 50% of the annual budget) stifle entrepeneurial efforts. Small & medium sized companies are still finding it difficult to access long term loans in order to expand inflation, due to government efforts in curbing inflation. So mixed messages in my opinion, but progress is progress, however slow, I can only hope that investments continue to flow in order to help the economy grow & stabilise in the near term. In addition to these shortcomings, there remain some limitations in Vietnam’s economy this year such as corruption, quality control and allocation of human resources. The World Bank’s report on December 10, 2008 stated that Vietnam’s economy will recover in 2009. Without these issues being aggressively tackled, I fear the flow & recovery may dry up.


Indonesia – the long road back

indonesia

The Asian financial crisis in 1997 pushed Indonesia to economic collapse a decade ago. Its overextended banking system imploded, spurring high unemployment, severe rioting and, eventually, the fall of the Suharto government. Weathering an even more calamitous global storm now, Indonesia has managed relatively well.

 

Now, to help it endure the global recession, Indonesia, Asia’s third-most populous nation after China and India, is planning an aggressive economic stimulus, the governor of Indonesia’s central bank said Monday in an interview.

“One of the key actions has to be fiscal stimulus for getting us through this crisis,” Boediono, the governor of Indonesia’s central bank, said

2008 has been a boom year for Indonesia, The energy and mining sector was forecast to book Rp 346 trillion (about 31.2 billion U.S. dollars) in revenue for the state by the end of 2008, up from Rp 225 trillion  in 2007. The sector contributes 36 percent to total state revenues, the biggest slice coming from oil and gas companies, which contributed Rp 303 trillion this year.

Despite these soaring revenues, the Energy and Mineral Resources Ministry has decided to put limits on lower revenue targets for next year. According to the ministry’s secretary general Waryono Karno, the government was looking at about Rp 271 trillion in revenue from the energy and mining sectors for next year. Of the total expected revenue, Rp 227 trillion would be from oil and gas, Rp 43 trillion from mining, and Rp 1.5 trillion from other sources. The ministry said Indonesia had received $28.60 billion in investment commitments for the energy and mining sectors in 2009.

Indonesia, the world’s largest coal exporter, is expected to produce 183 million tons of coal this year, about 134 million tons of which will be exported, China being the largest customer. Production in 2009 is projected to increase to 198 million tons, 145 million of which will be exported.

Indonesia is also theworld’s second largest LNG (Liquid Natural Gas) exporter & should by rights be able to take advantage of growing LNG demand from overseas, which is projected to increase in line with the rise in demand from China. China imports about 5 million tons of LNG every year, and this figure is expected to further increase in the coming years. China has signed a 25-year contract to buy 2.6 million tons of LNG annually from BP‘s LNG terminal project in Tangguh, Papua. The first delivery will be shipped in early 2009.

As the government tries to spur growth, spending will rise nearly twice as fast as the projected inflation rate of 6 percent next year, Mr. Boediono said. Indonesia expects to save $1.5 billion next year from lower spending on fuel subsidies with the decline in oil prices and plans to use the money as a down payment on the stimulus program, he said, but most of the money will be borrowed overseas. Boediono predicted that the Indonesian economy could still manage 5 percent growth next year, which probably would make it one of the better performers in the region. As part of this fundraising, Jakarta plans to issue global bonds next year despite the global slowdown, it would seem that Indonesia is banking  on the US stimulus planto spur the  appetite of  investors in  emerging market assets, including Indonesia.

President Susilo Bambang Yudhoyono called in a speech on Sunday for greater government spending to help maintain consumers’ buying power at a time of stress for the Indonesian economy. The finance ministry plans to increase government spending on road construction and other investment projects by a third next year, to $9.1 billion. Mr. Boediono said that the focus would be on small and medium-size projects that would create jobs quickly. He said education spending would also have to rise because the Indonesian Constitution requires that 20 percent of the government’s budget go to education.

As part of this government sponsored plan & in an effort to move aweay from reliance on mining & energy, 30 state owned companies are slated to be privatised next year via IPO on the Indonesian (IDX) & Jakarta Stock Exchanges (JXE).

“Most of the firms will be privatized via an IPO, except those companies in which the government has only a small proportion of shares,” the Jakarta Post  quoted Muhammad Yasin, Deputy Indonesian State Minister for State Enterprises, as saying.

The program will also include IPOs of flag carrier Garuda Indonesia and Bank Tabungan Negara, construction firms PT Pembangunan Perumahan and PT Waskita Karya are currently waiting for House of Representatives approval for their IPOs, according to Yasin.

 The Indonesian government expects to generate about Rp 10 trillion  ($906 million) from floating 30percent of the shares in each of these companies. Indonesia has 139 state-owned companies that deal with businesses, covering energy, mining, utilities, telecom, banks, services and commodities, which means that there is plenty of opportunity for foreign investors to enter the market & help buoy the economy.

Emirates & India pair up on Indonesian aluminium venture

nalcoIndia’s largest aluminum maker, state owned National Aluminum Company  (NALCO), and United Arab Emirates government-linked RAK Minerals and Metals Investment (RMMI) plan to invest $4 billion  to build a smelter and supporting infrastructure, including a power plant, in Tanjung Api-api, South Sumatra, Indonesia. $2.5 billion  of the planned investment will be spent on the smelter and the remaining $1.5 billion on a power plant, a port and railway. The smelter is designed to process 1 million tons of alumina a year and is expected to produce 0.5 million tons of aluminum annually. The alumina will be imported from India, which produces about 2.1 million tons of alumina per year. The proposed dealwill see RMMI taking a 24% stake in the Sumatran based project signed by NALCO & the Indonesian province last December.

RMMI signed a seperate infrastructure investment deal in February with the South Sumatran Government. This involves the Emirates firm investing into the Tanjung Api-Api industrial city project, which encompasses a new seaport, railway infrastructure & industrial complexes for the exploitation of coal, rubber & palm oil resources. In return for the investment, RMMI will receive fast track approvals for land acquisition & associated planning developments, additionally, the MOU commits the Sumatran Government to facilitating the acquisition of mineral off take agreements, as South Sumatra is the largest coal producing area in Indonesia, this is a very attractive deal for RMMI.

Madhu Koneru, Managing Director, RMMI, said: ‘This is one of the most exciting turnkey projects that RAKIA is undertaking and we believe that it has the potential to become a catalyst for our future organic growth in Asia. We are getting extra ordinary support and encouragement from Governmental authorities and leaders of Republic of Indonesia, including the citizens and regional administration of Banyu Asia regency and South Sumatra Province, which can help RAKIA and RMMI to implement this project within record time.’

Nalco, India’s key aluminium producer and a public listed company (BOMBAY – NALU)  –  in which the Government of India holds majority stake, has  25 years of experience in mining bauxite, alumina refining, power generation and aluminium smelting. The company operates an opencast bauxite mine of 4.8 million mtpa, which serves the alumina refinery at Damanjodi. The capacity of the mine will go up to 6.3 million mtpa by middle of next year under an expansion project that is currently in progress. The excess capacity of alumina refining, will be used to feed the new project in Sumatra.

 

“The smelter requires a lot of electricity and we have a lot of energy in India…but still we find that it make senses to put the power plant near coal mining here in Indonesia,” B.L. Bagra, NALCO’s director, told reporters. He said the power plant will help to keep the cost of production from the aluminium smelter competitive.