Update News December 06, 2016

In The News

Jokowi Meets Indonesian Economist
Tempo, 06 December 2016

President Joko “Jokowi” Widodo met with economic experts this morning in an event dubbed ‘Sarasehan 100 Ekonom Indonesia’ (Gathering of 100 Indonesian Economists) at Fairmont Hotel Jakarta.

The event was held by the Institute for Development of Economics and Finance (Indef) in cooperation with other organizations. Several economic experts attended the event include Anggito Abimayu, Halim Alamsyah, Gunawan Sumodiningrat, Bustanul Arifin, Fauizi Ichsan, Sri Adiningsih, Anton Gunawan and Didik J Rachbini.

Trade Minister Enggartiasto Lukita, Coordinating Minister for Economic Affairs Darmin Nasution, and Finance Minister Sri Mulyani Indrawati also attended the event.

On the occasion, Indef launched a book on Indonesian economic outlook 2016-2017.Indef founder, president director Didik J Rachbini, said that Indonesia currently faces internal and external challenges.

“There was Brexit, the rise of US President Donald Trump, globalization,” Didi Rachbini said, as quoted by Bisnis Indonesia.

According to him, Indonesia needs to maximize the huge resources of its domestic market.

“In addition, Indonesia’s state budget of Rp2,000 trillion must be [used] efficiently and de-bureaucratization must continue,” Didik said.

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President Jokowi Reviews Village-Fund-Financed Projects In E. Kalimantan
Antara News, 06 December 2016

President Jokow Widodo (Jokowi) and First Lady Iriana reviewed projects with budget from village development funds at Tani Bhakti village in Kutaikartanegara district, East Kalimantan, on Monday.

Accompanied by Tani Bhakti Village Head Alamzyah, Kutaikartanegara District Head Rita Widyasari, and Rural Development and Transmigration Minister Eko Putro, Jokowi and the first lady reviewed the construction of a clean water filtration and a retention basin in Tani Bhakti village.

On the occasion, the head of state remarked that the village development funds in Kutaikartanegara district were used appropriately in accordance with the needs of the community.

According to him, Rp201 million was spent for the development of the clean water filtration project, and Rp238 million was spent on the 5,000-square-meter water retention basin.

The government of Jokowi and Vice President M. Jusuf Kalla is undeniably serious about developing rural areas across regions in Indonesia.

In a bid to develop more than 74 thousand villages across the country, the government has allocated Rp20.7 trillion in funds last year to offer a direct boost to rural economic growth, including support to small businesses in the villages.

According to village Law No. 6 of 2014, every village will receive 10 percent of the total funds transferred by the central government from the state budget, along with 10 percent from the regional budget.

However, such a large amount of money cannot be divided arbitrarily, as it belongs to all the people of Indonesia and has to be used properly without any misappropriation. Therefore, the entire amount will not be given immediately but gradually over a period of five years with certain provisions.

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Jokowi Approves Balikpapan Toll Road Extension to Bontang
Tempo, 06 December 2016

President Joko "Jokowi" Widodo said that the construction of the Balikpapan-Samarinda toll road in East Kalimantan, will be extended to connect Samarinda and Bontang. The decision was made based on the results of a meeting with the Ministry of Public Works on Sunday evening, December 4, 2016.

Jokowi added that land acquisition process for the Balikpapan-Samarinda toll road has been completed.

Jokowi said that the idea to extend the construction of the toll road came from East Kalimantan Governor Awang Farouk. The idea was later approved after a number of considerations, including providing better access for people in the region.

In addition, the President said that the toll road would help to lower logistics and transportation costs.

"Price of goods would be cheaper too," Jokowi said.

The President had requested respective stakeholders to follow up the plan, allowing the establishment of consortium with private investors. "The government would like to have an accelerated growth so that the public could gain benefits," the President said

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Greater Jakarta: Sidewalk Improvement Projects Speed Up
The Jakarta Post, 06 December 2016

The Jakarta administration is speeding up the construction of new sidewalks in 42 locations across the capital with the goal of completing the projects by the end of this year, an official has said.

Jakarta Bina Marga road agency head Yusmada Faizal said the administration had previously planned to improve existing sidewalks while constructing new ones in 48 locations. But the vendors said they could not complete the projects in six locations, he said.

“There are also other problems. For instance, the sidewalk project on Jl. Mampang [in South Jakarta] must be postponed due to the ongoing underpass project in the location,” Yusmada said on Sunday, as quoted by kompas.com.

Other challenges included the existing utility poles and street vendors, he added. Yusmada said the agency would coordinate with relevant agencies to ensure that street vendors can run their businesses without hampering pedestrian access.

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Soekarno-Hatta Airport Train to Complete by June 2017
Tempo, 06 December 2016

Transportation Ministry is confident of completing Soekarno-Hatta Airport train project by June 2017, despite facing land acquisition issue in some areas.

“The airport train [project] has actually been fully completed. However, in some areas, we have yet to complete [land acquisition] of roughly 130 houses,” Transportation Minister Budi Karya Sumadi said in Jakarta on Monday, December 5, 2016, as quoted by Bisnis Indonesia.

He said that the ministry has two options for the airport train’s starting station: Dukuh Atas and Jakarta Kota Stations. The two has been chosen since Manggarai Station is not yet ready.

“It could start from Dukuh Atas because Manggarai Station is not yet ready. But Jakarta Kota could also be an option since it has no technical problem,” he noted.

Earlier, state-owned railway company PT Kereta Api Indonesia president director Edi Sukmoro aims to conclude land acquisition by year-end, in accordance with President Joko Widodo’s instruction.

“After addressing land issue, infrastructure construction of Soekarno-Hatta train can be sped up, and Soekarno-Hatta train is expected to operate by June 2017,” he said.

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Bank Indonesia Suggests Local Banks Cooperate With Fintech Companies
The Jakarta Globe, 06 December 2016

Bank Indonesia is suggesting that local banks should cooperate with digital banks and financial technology companies, or fintech, to maintain their bargaining position amid a customer exodus to these more innovative firms.

Bank Indonesia Payment System Policy director Farida Paringaninangin said that by working together, both institutions can learn from each other and attract a greater customers base.

"Technology should not threaten local banks, but it should complement their existing banking system and increase their performance," Farida told the Jakarta Globe on Saturday (03/12).

The response came after global management consulting firm Bain & Company released its annual report, which states that global consumer banks may have an unattractive future as they often lose out to direct banks – which offer services via online and telephone banking – and fintech, because of simple product systems and excellent user experiences.

The seventh annual report titled "Customer Loyalty in Retail Banking" also says customers, especially in developing markets, buy new banking products and services – such as credit cards, loans, insurance and investments – from competitor that have better digital marketing, sales and service.

"These banks recognize the importance of consumers' place in simple, digital banking and they are already well ahead of the curve in successfully delivering that value, rather than just providing transactional services," Bain & Company partner and Southeast Asia head of financial services Seow-Chien Chew said in a statement received by the Jakarta Globe last week.

"It's easy to say fintech and technology companies are going after the high-value banking activity, but it's also the more innovative established players that are winning a disproportionate share," Chew said.

However, the report pointed out that customer disloyalty has increased the urgency for retail banks to strengthen their digital channels, as younger generations will learn to purchase banking products through online channels, which further increase the gap between the digital leaders and the laggards.

Bain & Company polled more than 137,034 consumers of national branch banks, regional banks, private banks, direct banks, community banks and credit unions in 21 countries between July and September this year.

The survey was conducted in Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Singapore, South Korea, Spain, Sweden, Switzerland, the United Kingdom and United States.

Bain & Company also found that excellent products, prices and salesmanship from other banks contributed to customer disloyalty.

"The bigger challenge lies in how to organize the transition – from conventional to digital service/system – both at the frontline and in the back office, to improve how consumers do their banking," Chew said.

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PLN To Buy Waste-Based Power From 7 Cities
The Jakarta Post, 06 December 2016

State-owned electricity firm Perusahaan Listrik Negara (PLN) has committed to purchasing 100 megawatt (MW) electricity from waste-based power plants (PLTSa) in seven cities in a move that will help boost Indonesia’s renewable energy usage.

Under the build, own, operate, transfer (BOOT) scheme, the firm will buy the power at Rp 2,496 (18.77 cents) per kilowatt hour (kWh) within a 20-year period, according to an agreement signed Monday. Six cities, namely Bandung, Makassar, Semarang, Surabaya, Surakarta and Tangerang, will supply 10 MW electricity each to PLN, while Jakarta will distribute 4x10 MW.

“The MoU [memorandum of understanding] will ensure that PLN will purchase electricity from waste-based power plants built in those seven regions, so that investors can have certainty before putting their money on the projects,” said PLN corporate planning director Nicke Widyawati.

In February, a presidential regulation was passed to expedite the development of PLTSa between 2016 and 2018 as part of the attempt to resolve acute garbage problems in those aforementioned cities.

Jakarta, for instance, produces about 7,000 tons of garbage each day, while Bandung generates 1,500 tons.With such high waste output, the city administrations are expected to team up with power plant developers, either local government-owned enterprises (BUMD) or local and global private companies.

To support this plan, PLN is required to source electricity at a certain price in accordance to the Energy and Mineral Resources Ministry’s regulation No. 44/2015.As a result, the firm expects the government to provide subsidies to cover the price gap in its operation.

“However, such a scheme first needs approval from the House of Representatives. We may be able to implement this later in 2018 or 2019,” PLN president director Sofyan Basir said.

The government initially proposed Rp 1.2 trillion in subsidies for next year to overcome the price difference. This was later rejected by the House’s budget committee, arguing that such subsidies could not be given to a corporation. Many foreign investors have shown their interest to invest in waste-based power plants in the country.

“Currently, we have received 250 proposals from companies around the world that want to become developers under build, own, operate [BOO] scheme,” Jakarta Sanitation Agency head Isnawa Adji said, adding that the names of the assigned developers are set to be announced in March next year.

The companies are bidding to develop four Intermediate Treatment Facilities (ITF) to convert waste into electricity with a daily capacity to process about 1,200 tons of garbage each.The facilities, slated for completion in 2019, will require an estimated investment of Rp 1.5 trillion each.

Meanwhile, Jakarta-owned developer PT Jakarta Propertindo (Jakpro), which will participate in a separate energy project, plans to build one ITF with a capacity of 2,000 tons of garbage per day under a build, operate, transfer (BOT) arrangement. In total, those five ITFs are set to produce about 100 MW of electricity, 60 MW higher than purchase commitment by PLN.

The development of waste-based power plants is part of the government’s plan to supply 23 percent of the nation’s energy from renewable sources by 2025 in order to cut down carbon emissions and wean the country off fossil fuels.

To reach the target, the General Plan for National Energy (RUEN) stipulates that renewable energy must make up at least 11 percent of the energy mix by 2017, equal to 25.5 million tons of oil.

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Jokowi: Oil Refinery Project Stays in Bontang
Tempo, 06 December 2016

The government ensured the public that the oil refinery project in Bontang will not be relocated to other region. President Joko "Jokowi" Widodo gave his words during a work visit to Balikpapan, Monday, December 5, 2016.  

"For oil refinery and fertilizer zone projects;  I assure you they will not be relocated to other provices—they stay in East Kalimantan," Jokowi said when handing over 1,183 land certificates for the 2016 strategic land certification program in 2016 in Balikpapan.

Jokowi's statement was made in response to East Kalimantan Governor Awang Faroek Ishak's message from the public, requesting the 350-bpd refinery project to stay in Bontang.  

The president also said that the Balikpapan-Samarinda toll road construction will continue now that the land acquisition process is completed. 

"We will finish it by no later than late 2018," Jokowi said.

The president also said that his administration wishes for a speedy development that will benefit the people. "If road [infrastructure] is completed, logistics cost for staple goods will go down. Transportation fares will be cheap, and prices of goods will decline eventually," he said.

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Solution Found On Masela Block Pending Issues, Says Luhut
Antara News, 06 December 2016

Coordinating Minister for Maritime Affairs and Natural Resources Luhut Binsar Panjaitan said a way out has been found over pending issue in negotiation with Inpex Corporation, the operator of the Masela gas block.

"We already have a solution," Luhut said after a meeting with Energy and Mineral Resources (ESDM) Minister Ignasius Jonan and Deputy ESDM Minister Arcandra Tahar here on Monday.

Last week Luhut met with Managing Executive Officer of Inpex Kenji Kawano to discuss the companys requests.

"We discussed details of two pending issues in the contract . Discussion of the two items have been almost final but there are still minor differences," he said after the meeting with Kenji .

The two items are about compensation in length of contract and the capacity of the LNG plant to be built as a result of the change in location of the LNG plant, he said.

Inpex asked for an addition of 10 years to its contract in compensation for the change in the location of LNG plant as asked by the government.The government wants the LNG plant to be built on shore instead of off-shore as originally agreed.

"An addition of 10 years, however, is not possible. We are looking for an acceptable figure (for the additional length of contract)," he said.

On Monday, Luhut said a solution had been found but he refused to elaborate .

"It is yet to be reported to the president before being discussed at a limited cabinet meeting," he said.

Inpex said it needs an extension of contract to reach an economic value and reasonable investment level. The existing contract of Inpex in Masela is to expire in 2028 with the capacity of the LNG plant at 7.5 million tons per year.

Inpex wanted a larger capacity for the LPN plant at 9.5 million tons to increase the internal rate of return (IRR), but the government said the capacity should be in proportion with the size of the reserve in the Abadi field.

Jonan said the government does not agree with Inpex request to increase the LNG regasification capacity to 9.5 million tons a year (mtpa).

"The plan is 7.5 mtpa. There is, however, request from the industry ministry that part of the production is set aside for downstream industry . Therefore, the capacity would larger than 7.5 mtpa but not much higher," he said.

As for the request of Inpex for addition of 10 years to its contract, Jonan said it has yet to be decided.

"It is still being calculated. The final would be reported to the president," he said.

Arcandra said the government agreed with compensation in the length of contract for the operator of countrys largest gas block, but not 10 years.

"We will give (compensation) but not 10 years," he said.

Inpex has also asked that internal rate of return (IRR) is at least 12 percent or 15 percent as Ipex target

Among the incentives the company has proposed included extension of contract for the development and operation of the Masela block to 30 years or an additional 10 years as a compensation for the change in the location of the LNG plant from offshore to on-shore, and a tax holiday of 15 years. Inpex also asked for cost recovery of US$1.6 billion and larger production share.

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Acting Jakarta Governor, Minister Luhut Discuss Reclamation
Tempo, 06 December 2016

Acting Jakarta Governor Soni Sumarsono met with the Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan on Wednesday, December 5, 2016, to discuss reclamation project of Islets G and C in Jakarta Bay.

Soni said he learned in the meeting that the environmental permit from the Environmental Affairs and Forestry Ministry as well as designs for Islets G and C, currently set up by the National Development Agency (Bappenas), will complete in the near future.

“[The environmental permit and design] could be completed in two months’ time,” Soni told Tempo at the Coordinating Ministry for Maritime Affairs building in Central Jakarta on Monday, December 5, 2016.

According to him, resumption of construction work will be slow because Jakarta administration will be preoccupied with the regional election process.

“However, [other] activities such as instruments preparation will continue,” he said.

On the decision to proceed with the reclamation project, Soni leaves it to the Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan.

“Major decisions are left to the Coordinating Minister for Maritime Affairs,” he said.

Luhut has confirmed that environmental permit and designs will be completed in two months’ time.

“Yes, it’s true, we will see what happens next,” he said in the same location.

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