Posts Tagged ‘oil’

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.

Argentina belatedly reacts to financial crisis

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Fresh woes have hit the government of Argentina’s Peronista President Christine Kirchner this week, as natural gas giant Transportadora de Gas del Norte (TGN) defaulted on  a debt payment of roughly $22 million and would seek a broad restructuring, citing difficulties related to government price controls, higher costs and the depreciation of the peso aginst global currencies, in particular the US dollar.

This has forced the government to intervene, as reported in Bloomberg.com yesterday. In a statement on Monday, TGN said the Luxembourg exchange had suspended trading of two of its bonds, “due to uncertainty over the company’s financial situation.”

The government will “undertake a complete audit of the company” during a 120-day period, Planning Minister Julio de Vido told reporters  in Buenos Aires. Roberto Pons, an acknowledged energy regulation specialist, will ensure that “consumers rights aren’t affected by the company’s decisions,” he said.

TGN is one of the two largest transporters of natural gas in Argentina, delivering approximately 40% of the country’s total gas consumption and more than 50% of Argentine total gas exports. TGN has an exclusive license to operate the northern Argentina gas pipeline system for a term of 35 years.

Meanwhile, the farmers crisis has reinvigorated itself, with Argentinian soya producers once again vigourously lobbying the governemnet to relax the export tax on soya products, which was implemented earlier this year whilst commodities prices were soaring. In March, a three-week farmers strike over the soybean levy caused food shortages across the country. Farmers blocked roads, preventing trucks delivering produce to supermarkets in Buenos Aires and other major cities. Argentina is the world’s third biggest soybean exporter, with an annual harvest estimated to be worth $24bn (£12bn), the bulk of which is exported. Last year, it earned $13bn from exports of the grain. Kirchner had levied a 45% tax on soya exports in an effort to boost public funds.

Since then, sporadic strikes by farmers have impacted the Argentinian economy, a series of climb downs on the tax rate has not been able to sate the farmers. Yesterday Kirchner announced a new set of measures to boost the economy.Regarding the agricultural sector, the cut in export duties will apply only to wheat and corn, which will see their rate cut by 5% on export tax to 23% and 20% respectively. Soy export tax will not be cut from the existing 35%, however the president intimated this may change.

This is on the back of a number of a number of efforts to stimulate the slowing economy, early December saw the car industry receiving a $900M fillip to help underwrite car loans. Kirchner also managed to force through a new bill which basically nationalised the pensions industry, transferring $23 billion in private pension funds to the state, an estimated 25% of Argentina’s 40 million citizens contribute to the private funds. Their $4.5 billion in annual contributions will go to the government as well.

In mid-December, Kirchner announced an expanded stimulus plan, which will see the Argentine government committing to invest up to 111 billion pesos ($32.65 billion) in infrastructure projects from now to 2011 as a way of shoring up Argentina’s economic growth against the pounding it is taking from the financial crisis.

She said that this plan “is the most ambitious” in Argentine history and will create some 380,000 jobs with investment in infrastructure that reaches a “record” 5 percent of gross domestic product. Of the plan’s total investment up to 2011 in the energy, transportation and housing sectors, among other works, some $20.88 billion “already have the financial structure needed to carry them out,” the president said.

At 55% of GDP, Argentina’s public debt is very large. But the cost of servicing it has been low, partly because of the tough restructuring  imposed on bondholders. Even so, to service its debts, the government needs to find an extra $2.5 billion or so in 2009. It cannot tap the international capital markets, because it has still not settled with some bondholders nor its sovereign creditors in the Paris Club. Instead, it is relying on Hugo Chávez. This month Venezuela’s president bought another $1 billion in Argentine bonds (taking his total purchases to $7 billion). The latest bonds pay interest of 15%—the same rate agreed by Domingo Cavallo, a former finance minister, in a notorious bond swap which precluded the 2001 financial collapse.

China stocks up on energy & raw materials while prices are depressed

001320d123b90949ce3308 China has embarked on an ambitious spending spree in order to help stave off recessionary pressures & attempt to maintain a growth target of  8% in 2009. Following on from its massive $585M stimulus package, announced in early November, news of deals in energy & metals has been flowing over the last week. When the stimulus package was originally announced, we heard this from our friends at RBS :

“Whats important here is just how quickly that money hits the street,” said Ben Simfendorfer, chief China economist for Royal Bank of Scotland, speaking on CNBC

Well it would seem not to have taken too long, as we have news that apart from pulling forward the long anticipated 3G rollout, as reported on MyStockVoice in an earlier post, China is beginning to stockpile oil & gas via imports whilst building an inventory of  aluminium & other metals from domestic producers.

Zhang Guobao, the head of the National Energy Administration, said in remarks published on Monday that China would actively push forward the construction of the second phase of state strategic oil reserves after having largely completed the first phase. China has completed the planning of the second phase of government storage facilities that would be able to hold up to 26.8 million cubic metres of oil, or some 170 million barrels, but has not disclosed whether construction has begun. Nor has the government disclosed if the tank farms set up in four locations in the first phase, with total capacity of some 102 million barrels, have been fully filled.

The world’s second-largest oil user will also take advantage of opportunities resulting from the financial crisis and weak energy market to expand energy cooperation with neighboring countries and major energy producers, Zhang said.

State controlled Sinopec (NYSE – SNP) recently completed the construction of oil storage tanks with a capacity of 3.8 million cubic metres in the coastal province of Zhejiang & has also announced a mutual supply agreement with fellow oil giant CNPC  . Similarly, rival PetroChina (NYSE – PTR) has begun to fill a new facility of 1 million cubic metres in the northwestern Xinjiang region in partnership with Kazakhstani oil firm KazMunay. Zhang also confirmed that China will push forward the construction of the proposed China-Myanmar oil and gas pipelines while also proceeding with the China-Central Asia gas pipes and the second phase of the China-Kazakh oil lines.

Meanwhile, counterparts at the State Reserve Bureau (SRB), have announced that will buy 300,000 tons of aluminum at 12,300 yuan (about $1,750) per ton in January 2009 to push up prices and support producers, as reported by Rednet. China’s aluminium producers, like their competitors worldwide and their peers in other base metals, have been forced to shut down some production to cope with the impact of the global economic crisis, which has crippled demand. 

“Aluminium prices were encouraged on the reserve purchase news,” said analyst Jia Zheng at Southwest Futures. “The decided purchase volume seems to be lower than expected but we are looking forward to more movement by the reserve bureau.”

 

Chinese officials have said they plan to buy up resources and materials to support producers, who are smarting from prices that have fallen below the cost of production, rumours abound that this buy up on aluminium could reach a total of 1 million tons by April 2009. The major recipient for this windfall will be state controlled Chinalco subsidiary Chalco (NYSE – ACH), who is reported to be receiving 50% of the order, whilst the remainder will be shared by seven regional producers.

 On the same day as the SRB announced the procurement plan, Bao Steel Group, China’s top steel maker, raised its February steel prices by 100 yuan/ton to 300 yuan/ton, this is widely believed to be in response to a previous SRB announcement that  another 3 trillion yuan ($400M)would be set aside for railway infrastructure construction projects and post-quake reconstruction efforts, the investments are expected to increase steel demand by 200 million tons in 2009. This could also be potential good news for other steel majors, particularly Mittal Steel (NYSE – MT), which acquired a 37% stake in government owned  Hunan Valin, Mittal  already has a $100 million steel plant under construction in the northeast China port city of Yingkou, Liaoning province.

Update 1 (30/12/08) : Myanmar signs gas deal with SKorea, India, China as reported in The Times of India

Military-run Myanmar has signed a deal with South Korean and Indian companies to pipe natural gas from the energy-rich nation’s offshore fields to China, state media reported Monday.

“The agreement was signed to export natural gas to China from Shwe natural gas project at Block A-1 and A-3 at Rakhine coastal region through pipelines,” the New Light of Myanmar newspaper said. The paper gave no other details of the project, but Beijing media reported last month that China was planning to start construction on a gas pipeline to Myanmar in early 2009.

 

Serbian standoff

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As previously discussed in Russian Energy Bears, state owned Gazprom is on the prowl for new acquisition targets near to home, the latest potential suitor is Serbian state energy company NIS (Naftna Industrija Srbije). As reported in early December by news agency Novosti, Gazprom is looking to acquire 51% of the Russian sattelites energy reserves & control of its refining & retail operations, for $400M. In return, Gazprom offers to invest up to $500M in developing & building new gas storage infrastructure & also construction of a distributions spur for the South Stream Pipeline.

“An agreement was reached today (5th Dec 08) to sign three deals by the end of the year,” CEO Alexei Miller said, referring to Gazprom Neft’s acquisition of state-owned Naftna Industrija Srbije, Gazprom’s $500 million investment in a gas storage facility in Serbia, and the construction of the Serbian segment of the South Stream pipeline.

The South Stream Pipeline is set to provide a distribution network across SE Europe, allowing Gazprom to distribute up to 30Bln cubic meteres of gas via Greece, Bulgaria & Serbia. The pipeline has attracted some controversy, mainly from the US, as it is seen as being a further attempt by Gazprom to put a stranglehold on EU energy supplies. Russia contends that this is purely diversification, an understandable premise, as soured relations with Ukraine on transit deals & domestic prices caused Gazprom to turn off the Ukrainian supply in 2006. More on the myriad of pipeline deals can be sourced here at The Bridge.

Meanwhile, although the deal is done from a Gazprom point of view, it is causing ructions within the Serbian government itself. Serbia’s Economy Minister Mladjan Dinkic said Serbia should sell its state energy company, NIS, only if Russia signs firm guarantees that the South Stream natural gas pipeline will indeed be built. But Deputy Prime Minister Ivica Dacic said Serbia should sell the company even without Moscow’s guarantees, or risk losing the support of its “strategic” political ally.

Dinkic and other pro-Western ministers in the government fear that Russia’s takeover of the country’s energy sector would dramatically increase Moscow’s political influence in the Balkan country.

Dinkic said that Russia insists on maintaining a monopoly over the sale of oil products in Serbia until 2014, is reneging on its promise to invest €500 million in modernising NIS, and has offered no guarantees that the European Union’s pollution protection standards would be implemented.

so capitalism Russian style.

UPDATE 1 10/02/09 : From OilVoice : Gazprom completes acquisition of 51% in NIS

JSC Gazprom Neft completed the acquisition of 51% of shares in Serbia’s NIS at a price of 400 million euros. The acquisition was made in accordance with the purchase agreement between Gazprom Neft and the Serbian government.

The agreement also provides for the reconstruction and upgrade of NIS process facilities by 2012; investment will amount to at least 500 million euros. As part of the upgrade, measures will be taken to improve the quality of oil products so that they meet European standards (Euro-5).

Russian Energy Bears

 

& not talking about “bears” in the market sense either.

We are all familiar with the stories of Gazprom trying to muscle into neighbours energy markets, but something a little more interesting is quietly going on at Lukoil.

For those not in the know, Lukoil is the largest private oil producer in Russia, with a similar track record of acquiring majority stakes in neighbouring countries energy assets. This strategy is now being expanded, with Lukoil now in negotiations to acquire 30% of Spanish oil giant Repsol. You can get a good idea of Lukoil acquisition efforts from this press release source : Lukoil Corporate PR

The Spanish opposition is none too happy about this, as reported in the Barcelona Reporter , Spain’s conservative opposition leader Saturday hit out at the possible sale of a stake in oil major Repsol to Russian energy group Lukoil , saying he would do “everything possible” to prevent it.

“Nobody in Europe has sold its energy supply and put it in the hands of a Russian company,” Mariano Rajoy told a political meeting.

Interestingly enough, Gazprom had tried this earlier this year, as two of Repsols main shareholders (savings bank La Caixa & construction company Sacyr Vallehermoso) are being forced to realise a cash sale to stave off problems elsewhere. The combined stake is valued at up to $6B. Gazprom was rebuffed by the Spanish Government, after the Russian Deputy Prime Minister revealed that Gazprom were interested in the stake.

 Maria Teresa Fernández de la Vega , the Spanish deputy prime minister –

the government wanted Repsol to remain a company that was “managed by Spaniards … and guarantees supplies”.

So, back to Lukoil, which is 100% privately owned, mostly by minority shareholders, but also with a 20% holding by US oil firm ConocoPhil¨lips.

This wouldn’t have anything to do with the fact that the current Spanish administration feels as though it is not being taken seriously at the top table of global politics ? PM Zapatero, has been left out in the cold by the Bush administration for quite a while now, after Spains retraction from bilateral anti-terrorism activities. Recently Zapatero was heard to complain that he had not been invited to the latest G8 + 5 Summit in Washington.

All this going on while the European Commissioner Jose Manuel Baroso commented on EU efforts to secure non Russian dominated energy supplies.

The EU wants different sources of supply We must not sleepwalk into Europe’s energy dependence crisis.

Obviously the fact that Lukoil & ConocoPhillips are already partners in a lucrative Russian JV in the Timan Pechora oil & gasfields has no bearing on the decision making at all.

 

Tail wagging the dog ?