RI, China firms sign major deals on energy

Johannes Simbolon, The Jakarta Post, Nusa Dua, Bali

Indonesian and Chinese companies signed here on Wednesday six memoranda of understanding (MOU) worth hundreds of millions of dollars to cooperate in the country's oil, mining and power sectors, marking closer relations between the two countries.

Aside from the six MOUs, both countries are also scheduled Thursday to sign a contract worth US$8.4 billion for the supply of liquefied natural gas (LNG) from the planned Tangguh LNG plant in Papua to China's Fujian province. This sales and purchase contract will be signed by Indonesian state oil and gas company Pertamina and China's state energy firm China National Offshore Oil Corporation (CNOOC).

The six MOUs were signed during the First Indonesia-China Energy Forum which was attended by dozens of governmental and energy company officials from Indonesia and China.

The agreement included an MOU for the development of a 65 Megawatt (MW) combined cycle power plant in Palembang, South Sumatra. The East Palembang power project, as it was named, was initially owned by a consortium including Indonesia's state electricity company PT PLN and PT Astratel Nusantara, which is a subsidiary of automotive giant PT Astra International, but it was delayed by the government in 1997 due to the economic crisis.

The project will be developed by China National Chemical Engineering and China ChengDa Chemical Eng. Co. No details were available about the total value of the project.

PLN also signed an MOU with China National Machinery & Equipment Import & Export Corp. to build a 220-MW coal fired power plant in Labuhan Angin, Sibolga, North Sumatra. The project is worth $447 million.

The state electricity company also signed an MOU with China Machine Building International Corp. for the development of the Parit Baru (Pontianak) coal-fired power plant in West Kalimantan. The 100-MW power project is worth $246 million.

Another MOU was signed by state gas distribution and marketing firm PT Perusahaan Gas Negara and CNOOC to cooperate in the development of the gas pipeline linking East Kalimantan and East Java. The project is worth $1.7 billion and is the largest gas pipeline ever in Indonesia.

PGN President WMP Simandjuntak said several companies from South Africa and Europe had expressed interest in participating in the project, but the MOU specified PGN as the Petrochina Company Ltd. (CNPC) to be used in talks about cooperation in the project.

CNPC could become a financier or a shareholder in the project, Simandjuntak said.

Chinese state-owned energy giant Sinopec signed an MOU to buy a stake in the Batumandi, Diski and Basilan blocks, in North Sumatra from local firm PT Cahaya Putra Kencana.

Indonesia's state-owned mining firm PT Bukit Asam also agreed with China National Technical I/E Corp to develop underground coal mines in Ombilin, West Sumatra.

Pertamina's president Baihaki Hakim told reporters on the sidelines of the meeting that a Hong Kong-based private company Pacific Oil & Gas Limited had voiced interest in buying three million tons of LNG per year from the a Bontang, East Kalimantan, plant starting in 2005 or 2006. The LNG will be supplied to China's province of Giangshu.

The Indonesia-China Energy Forum was established last March during the visit by President Megawati Soekarnoputri to China with the purpose of building closer ties between the two countries in the energy sector. China, which is predicted to become an economic superpower in coming decades, has a great demand for new energy sources to support its economic progress.

The forum was established at a time when Indonesia was aggressively approaching China to win the tender for the LNG supply to the Guangdong province. The Chinese government finally awarded the Guangdong contract to an Australian consortium, but offered the Fujian contract to Indonesia.

China started establishing its foothold in the country's energy sector early this year with CNOOC acquiring the Repsol-YPF assets in Indonesia.

It was followed by an acquisition by another Chinese state energy firm PetroChina of all the Indonesian assets of American firm Devon Energy. Today, both firms account for 12 percent of the country's daily oil output of more than 1.2 million barrels.

Noted oil analyst Subroto, who is former secretary general of the Organization of Petroleum Exporting Countries (OPEC), said Chinese companies would have energy technology comparable to Western companies.

The aggressive expansion of the Chinese companies into the country's oil and gas sector should be welcomed and encouraged as many Western companies were now reluctant to invest due to several high-risk issues.

Many deem Indonesia as a volatile place for their investments due to a number of factors reported in the western press which scares them off.

"The Chinese companies are not scared by the terrorism issue," Subroto said, apparently attributing the western exodus to terrorism.