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APRIL 2005®IN THIS ISSUEChina market targetas Malaysia boostsits services sectorIran throws downgauntlet on LNGCosting East Asia’sinfrastructure needsRafidah AzizINTERNATIONALBACK TOBUSINESSIN INDONESIAIndonesia'sCo-ordinatingMinister forEconomic Affairs,Aburizal Bakrie22nd year of publicationPrint Post Approved PP240725/00001

®Volume 23 | No.3 | APRIL 2005XINTERNATIONAL22nd Year of PublicationPublished in Australia since 1983. Published by Asia Today International Pty Limited(ABN 34 109 69 874). Office address: Level 29 Chifley Tower, 2 Chifley Square, SydneyNSW, Australia. Production Office: Level 1, 1463 Pittwater Road, Narrabeen NSW 2101,Australia. Telephone (612) 9970-6477. Fax (61 2) 9913-2003. Mailing address (allcorrespondence): Box N7, Grosvenor Place Post Office, Sydney NSW 1220, Australia.E-mail . Website .ContentsCOVER REPORTAburizal Bakrie: ‘We need averagegrowth of 6.6 per cent’THE REGION5-8 BACK TO BUSINESSIN INDONESIAFor the first time, Indonesia’s private businesssector is working in close co-operation with theGovernment, with key business leaders involvedin both Ministerial posts and direct advisoryroles. Business frets that if the Government doesnot seize opportunities this time, Indonesia willbe “doomed to stagnation”. Aburizal Bakrie, oneof Indonesia’s most successful business figures,has been appointed to a senior economic planning portfolio as Co-ordinating Minister forEconomic Affairs. Embarking immediately onthe task of rebuilding the national economy,Bakrie has adopted what he terms a “tripletracked”strategy, with considerable emphasison repairing Indonesia’s micro-economy. In tandem,infrastructure projects costing an estimatedUS$140-US$150 billion over five years areplanned — here, Bakrie hopes the private sectorwill provide 63 per cent of required funding9-11 MALAYSIA BOOSTS SERVICES SECTORMalaysia is broadening its economic base into construction,healthcare and educational services, accepting that it is nolonger a cost-competitive location for labour-intensive industries.Malaysia’s Minister for International Trade and Industry,Rafidah Aziz, sees China as a mutually-beneficial businesspartner in a number of sectors13-15 IRAN THOWS DOWN GAUNLET ON LNG: Petroleumdevelopment in Iran geared to meeting Asia’s hunger for energyis advancing — despite US economic sanctions and growingtension between Tehran and Washington. Iran has signedoff deals with both China and India. Meanwhile, BP has giventhe green light to the US$5 billion Tangguh LNG project inIndonesian Papua, with commitments already for supply to China,South Korea and Mexico.INFRASTRUCTURERafidah Aziz:Wants ‘comprehensive’FTA withAustralia15 US$200 BILLION YEARLY BILL FOR EAST ASIA: East Asia must build more infrastructure— or stagnate. That seems to be the message from a new report from the JapanBank of International Development, the ADB and the World Bank, as investors wait and see21 THAILAND RISKS MAY BE WORTHWHILE: There are still plenty of risksin investing in Thailand’s infrastructure, but the rewards during Prime MinisterThaksin’s second term may be worth it. The Government is planning projectsthat will cost US$3.7 billion over four years.22 TERRORISM ADDING LAYER OF RISK: Lawyer Alan Millhouse says large infrastructureprojects can attract terrorism threats, and that the global insurance industry hasidentified Thailand, the Philippines and Indonesia as markets where security risk must betaken into accountDaily updates –and a weeklysummary ofwhat you mighthave missedIn business, timeis money – whichis why we offer aweekly e-briefsimply listing thebusiness headlinesyou might havemissed, with directlinks to what youdecide really matters.Time-saver.BULLETINBOARDBUSINESSONLINEBUSINESSTRAVELMAGAZINEONLINEPUBLICATIONSONLINEBUSINESSDIARYSUBSCRIBERRESOURCESSUBSCRIBERNETWORKONLINEwww.asiatoday.com.auwww.asiatoday.com.auCHIEFEXEC-UTIVES from eightleading Chinese corporationsmet recently in thebeautifully-restored 14thcentury Chateau deTouffou near Poitiers inFrance to find out moreabout the intricacies ofgoing global fromsome of the best gurusin international marketing.Peter Williamson, a leadingconsultant on internationalbusiness managementand a professorat the Cedex, FrancebasedINSEAD businessschool, was a presenterat the four-daygathering. Williamson,a regular visitor toChina, led two discussions– one onBuilding an internationalorganisationand the otheron Using acquisitionsand alliancesto speed up theprocess of becomingglobal.All contents copyright © ASIA TODAY INTERNATIONAL 2005ASIA TODAY INTERNATIONAL APRIL 2005 | 3

COVER REPORTECONOMIC PLANNINGBUSINESS SETS THE TONEFOR A‘NEW’ INDONESIABACK TO BUSINESS (left to right) Chris Kanter, Vice President, KADIN; Noke Kiroyan, Chairman of Rio TintoIndonesia; Mohamad Hidayat, President of KADIN; and John Prasetio, Vice President, KADIN, pictured in Sydney.ONE of Indonesia’s most successful businessmen has taken on the task of rebuilding the nationaleconomy, and he has adopted what he calls a ‘triple-tracked’ strategy. Aburizal Bakrie saysIndonesia’s micro-economy, what he terms the ‘real’ economy and the agricultural sector will leadthe recovery, in tandem with infrastructure projects costing an estimated US$140-US$150 billionover five years. He hopes the private sector will provide 63 per cent of required funding . . .by Florence ChongEditor, ASIA TODAY INTERNATIONALFACED with 10-per cent plus unemployment,a shortfall in infrastructure and privateinvestment, and successive natural calamities,Aburizal Bakrie certainly has his plate full.Bakrie was one of Indonesia's most successfulbusinessmen before taking on the responsibilityof co-ordinating Indonesia's economicaffairs. As the country's most senior Minister,the task of reviving the Indonesian economyfalls squarely on his shoulders.In an interview with ATI, Bakrie outlined his"triple-tracked" strategy to stimulate the economy.One track, he says, is to improve the microeconomiccondition in Indonesia; the second isto revive the real sector of the economy; and thethird, to strengthen the agricultural sector thatunderpins the rural economy. He says the previousGovernment did a good job with the macroeconomy,holding down inflation and maintaininga relatively stable exchange rate to createstable economic conditions.From the eyes of a business leader, Bakriesays Indonesia’s biggest weakness is its microeconomy.Indonesia has lost opportunities todevelop in the seven years following the collapseof the Soeharto presidency in 1998 —after which Indonesia fell into deep recessionwith negative growth of 14 per cent.Bakrie says Indonesia did not grow at all forthe three year to 2002, then started to make amodest recovery. The economic loss to the countryhas been substantial, he says. "Our unem-ployment is more than 10.2 per cent — and thatis only our open unemployment. If you talk aboutunder-employment, the rate is 30 per cent. "❝ Our unemployment ismore than 10.2 per cent,and that is only our openunemployment. If you talkabout under-employment,the rate is 30 per cent❞In Asia, he explains, if a person is underemployedhe is still able to live because of familyties. So the most urgent problem is to tackleopen unemployment. "It is vitally crucial thatthe Government generates employment,” hesays. “This is why we must work on the realsector of our economy."Micro enterprises, small and medium-sizedcompanies contribute up to 75 per cent ofIndonesia's economic activities. "We have 32million micro companies. If they can add onlyone person to each business, we will have 32million more jobs."Indonesian banks are directing their credit tothis sector to finance growth. Bakrie says: "It isimportant to know that, this year, Indonesiancommercial banks plan 60 per cent growth incredit to micro-economic businesses. Sixty percent — that is not my number, it is their number."We are lagging behind in many areas — forinstance, in training of our workers to keepabreast of the competition from China andother countries. And in the last seven years, noinfrastructure was built. But we are going tocatch up, and we need average growth of 6.6per cent (to do that)."So far, the Government, led by non-nonsensePresident Susilo Bambang Yudhoyono (SBY),has done much to show the world that this isthe team intent on fixing Indonesia's problems.One of its boldest moves was to brave publicand political opposition in March to cut oil subsidies."There were a lot of protests against ourdecision. We had to do it to survive. Fuel subsidiescost the country US$8 billion a year," saysBakrie. The aim is to halve the value of subsidiesby increasing the price of fuel by 29 percent. The Government has allocated US$1.9 billionfor various assistance programmes to easethe burden of the fuel price hike on the poor.The move is part of Indonesia's strategy toconserve oil for exports, under a soon-to-beunveiledenergy strategy. This will shiftIndonesia more to coal and gas for domestic consumption."We have an abundance of coal andgas,” says Bakrie. “Our economy has dependedon oil. In future, we will export our oil."Jakarta is also putting the finishing touchesto a new industrial strategy which will focuson natural resources, agri-based business,chemicals and the petrochemical sector.Bakrie says Indonesia will still pursue labour-➔ CONTINUED PAGE 6ASIA TODAY INTERNATIONAL APRIL 2005 | 5

PUBLISHERBarry PeartonEDITORFlorence ChongCORRESPONDENTSEditorial Advisor (Asia) – Philip Bowring; Hong Kong –K.K. Chadha, James Yapp, India – N. Hariharan,Rajendra Bajpai; Indonesia – Tom McCawley; Indo-China – Steve Joel; Japan – Russell McCulloch; Korea –John Park; Pakistan – Raja Ashgar; Philippines – AbbyTan; Singapore – Andrew Symon; Thailand – RobertHorn; Taiwan – Michael Taylor.ADVERTISINGREPRESENTATIVESAUSTRALIASydney: ASIA TODAY INTERNATIONAL, Level 29Chifley Tower, 2 Chifley Square, Sydney NSW 2000.tel (61 2) 9970-6477. fax (61 2) 9913-2003.Email: advertising@asiatoday.com.auVisit www.asiatoday.com.auBrisbane: The Media Workshop, Suite 3, 211 LoganRoad, Woolloongabba QLD 4102. Tel (61 7) 3391-6633,Fax (61 7) 3891-5602.Contact: Jaye Bradleyemail jaye@Themediaworkshop.com.auAdelaide: HWR Media Specialists, 109 ConynghamStreet, Frewville SA 5063. Tel (61 8) 8379-9522, Fax(61 8) 8379-9735. 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For details, visit the LEXIS NEXISwebsite at www.lexis-nexis.comVisit us at www.asiatoday.com.auPrinted by Pirie Printers Pty Limited, 140 Gladstone Street,Fyshwick, Canberra ACT 2609, tel (61 2) 6280-5410,fax (61 2) 6280-7453COPYRIGHT© All material in ASIA TODAY INTERNATIONALis copyright.Reproduction in whole or in part is not permitted withoutwritten permission of the publisher.➔ FROM PAGE 5THE REGIONintensive manufacturing in footwear and clothing,but realises that it will have to moveupwards in quality so as not to compete directlywith China. "It is possible to carve a niche forourselves. Italy and France still make their handbagsand shoes — but of the highest quality."Bakrie says attracting electronic industries toIndonesia will be a Government goal. TheGovernment will also seek to attract industriesthat manufacture for both domestic consumptionand export.Just two months after the SBY Governmentwas sworn in, Indonesia was hit by a tsunamiwhich killed more than 200,000 Indonesians inthe province of Aceh. An earthquake offSumatra, in late March, then killed more than1,000 people.Says Bakrie: "Aceh has not set back theGovernment's economic plan." But Aceh, whichcontributes two per cent of the national economy,is adding to the Government's budgetarystrains. Despite the promise of billions of dollarsin aid, Indonesia has had to allocate funds fromits own Budget for relief and now reconstructionof Aceh. "We have spent about three trillionrupiah (more than US$300 million) because aidmoney has not yet come." Bakrie told ATI.Jakarta pressed ahead with its infrastructuresummit in January, an event planned twomonths before the tsunami. "The Presidentwanted to show the world that the Governmenthas control of the situation,” he says. In thatsame week, Indonesia also met internationaldonors at the annual Consultative Group onIndonesia (CGI) meeting in Jakarta. "Therewere proposals that it should be postponed, butI said ‘no’. The result was that we had a verysuccessful infrastructure summit and a verysuccessful CGI meeting."Bakrie adds: "The infrastructure summit wasorganised by the second-and third-echelon civilservants. This is a proof that directions set bythe President and Ministers are being carriedout." But the Government continues to reformthe bureaucracy to make it more responsive.Bakrie says the Government has offered onlyviable proposals to the private sector. "Weexpect these projects to return 15 to 23 per centin US dollar terms. We think this should beenough considering that the interest rate on USdollar deposits is low.” (The US treasury benchmarkrate is currently 2.75 per cent.)"We have identified $140-US$150 billionworth of projects to be developed over the nextfive years. We have asked Indonesian bankswhat they can do, and they say they can makeavailable funds for up to 20 per cent of the costof investment." The Government will underwrite17 per cent of the cost, especially forprojects such as dams in rural areas. Bakriehopes the private sector will provide 63 percent of the funding. "We don't want to knowwhether the money comes from bonds, loansor their own pockets. We will be happy just tosee investment coming back," he says.The key projects are in electricity, water,telecommunications, and power generation,but Bakrie says all other projects on theGovernment list are open to tender."We have changed the way we negotiate. Itwill be totally transparent. We will have a websitethat will chart the status of all projects." Toget around the problem of acquiring land forprojects, Bakrie says the Government will makeland available for public use — for example, for6 | ASIA TODAY INTERNATIONAL APRIL 2005

THE REGIONtoll roads, ports and power stations.As well as attracting foreign investment,Bakrie says: "Definitely, we also want to growour indigenous business, which, too, has fallenaway.” But he is hopeful of an upward trend."With a stable political situation, people arenow more confident of Indonesia," he says,adding that Indonesia underwent a sevenmonth-longPresidential election last year withoutspilling blood in the streets. “It was verypeaceful election that came as a surprise toelection observers,” he says."Our President has vowed to fight corruptionand is committed to having a clean, transparentand professional Government. When he attendedthe APEC (Asia Pacific Economic Co-operation)Leaders' Summit last year, he was embarrassedthat Indonesia ranked as one of the mostcorrupt countries in the world." Bakrie says thePresident is determined that when he attendsthis year's APEC Leaders Summit, Indonesia'sposition will have improved. "He is putting a lotof effort into reducing corruption."While others may not agree with him,Minister Bakrie declares that corruption is not"on-the-table corruption" but admits thatmaybe there are still under-the-table deals. "Wewant a clean Indonesia in order to compete. Weare promoting Indonesia and we need to winthe trust of investors."Winning that trust is key to the revival of❝ Jakarta is putting the finishingtouches to a new industrialstrategy which will focus onnatural resources, agri-basedbusiness, chemicals and thepetrochemical sector.❞Indonesia, which was one of the most populardestinations for foreign investors in the early tomid-1990s.Bakrie says there have been a lot of complaintsabout the justice and legal systems.InMarch, there was a bankruptcy applicationinvolving payment of US$8 million, and thecourt turned down the application. "I don'twant to see a repeat of Manulife," he says.(Manulife was a protracted high-profile saga ofcorruption involving the Canadian life company,its co-investor, the International FinanceCorporation, and their Indonesian partner.)The Government is working closely withKADIN, the Indonesian Chamber of Commerceand Industry and Indonesia’s peak businessorganisation, on a range of issues of most concernto business these include taxation, investmentand labour law. Business leaders told ATIthat, for the first time in 50 years, business hashad an input into Government policies.It is early days yet, but Bakrie is heartened bythe fact that, in the last three months, the economygrew at 6.6 per cent and in 2004 finishedwith 5.13 per cent growth — ahead of the originalforecast of five per cent. "That growth is notin consumption, as in the past seven years, butis driven by exports (which rose by 18 per cent)and investment (up 13 per cent)," he says.Under the Government's Five-Year Plan, Bakrieaims to lift growth to 7.6 per cent in 2009,averaging 6.6 per cent over five years.INDONESIA PLANS AHEADFor SBY and business,the honeymoon continuesTHE HONEYMOON betweenPresident Susilo Bambang Yudhoyono and theIndonesian business community continues —six months after SBY’s election."This is the first time the private sector hasworked in close co-operation with theGovernment," says Mohamad Hidayat,President of KADIN (the Indonesian Chamber ofCommerce and Industry).Hidayat and a group of KADIN executivesand business leaders accompanied threeIndonesian Ministers, led by Aburizal Bakrie,the Co-ordinating Minister for EconomicAffairs, to Australia in March for a series ofinvestment seminars.SBY has told other foreign business groups towork together with KADIN to present theGovernment with a co-ordinated view of whatbusiness wants it to do."When we first had a chance to see thePresident-elect, one of the things we discussedwas why investors are not flocking to Indonesia.Instead, they go to China, Vietnam andThailand, John Prasetio, KADIN Vice Presidenttold ATI. "We told him the reason is badGovernment policy. Indonesia must reform itspolicies. We are encouraged by the pro-businessstance of this Government."Mohamad Hidayat: Close co-operation.KADIN co-ordinated the views of businessand drew up an economic developmentroadmap (see ATI December 2004) whichbroadly became the basis of the currentGovernment's agenda to reform its taxation,Untapped potential marketsin Asia? 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➔ FROM PAGE 8TSUNAMI FUNDING LAGSlabour laws, judicial systems and lawenforcement, and to improve the climate toattract investment into infrastructure development.Business also wants theGovernment to review and revise the lawon autonomy, which devolves power tolocal governments."We are waiting and pushing thePresident to move more quickly on reformsto our taxation system, the laws on labourand regional autonomy," says Hidayat.Business leaders also spoke of another"crucial problem" — the public sector. Theyfeel changes pursued by the central governmentare not being implemented by thebureaucracy. "Indonesian bureaucracy isstill living out the old paradigm." he says."We keep reminding the Government tokeep to its reform targets because we simplycannot wait any more."They point out that this Government isthe first popularly-elected in Indonesia, andthat it has the next five years to implementpolicies that can change the course ofIndonesia's history. If the Government doesnot grasp this opportunity, they fret thatIndonesia will be doomed to stagnation.Chris Kanter, a KADIN Vice President, saysthis is a pro-business Government supportedby the people. So, for the first time, thecountry is united in the direction in whichit should move forward.❝ If the Governmentdoes not grasp thisopportunity, theyfret that Indonesiawill be doomed tostagnation.❞Kanter says the previous Governmentsubmitted a draft to reform Indonesia's taxationsystem, but this was not implemented."Business did not agree to the plan.Now we have a new Government and thePresident gave us the plan to review. Whatwe are looking for is equality. The currenttax law is one-sided. The Director Generalof Taxation is the person to bring taxinfringement charges and he is also the persondoing the investigation. He judges ontax evasion and he also handles appealsagainst the Department's decision. We arelooking for a separation of power."Kanter says business believes it would beuseful to have an amnesty period to allowpeople the opportunity to pay back taxes.The Government is reviewing its options onhow it can increase tax revenue.John Prasetio says reform of the publicservice will lead to cost saving for peopledoing business. Anti-corruption measuresare also crucial to creating a better businessenvironment in Indonesia. "MostIndonesians support the move for the privatesector to work with the Government tofight corruption," he says.INDONESIA’S President, SusiloBambang Yudhoyono, came to Australia to personallythank the Howard Government and theAustralian people for their generosity and assistancein recent crises.Australia offered the largest single aid packageof AUD1 billion — AUD500 million in grantsand AUD500 in concessional loans — for Aceh,when it was struck by the December tsunami.Then came additional aid and assistance whenSumatra was hit by an earthquake.Australia is one of three donors to have putmoney on the table. "Australia has offered usvery good terms — 10 years‚ grace on interestpayment and another 40 years to repay theloan," Indonesia's Co-ordinating Minister forEconomic Affairs, Aburizal Bakrie, told ATIwhen he visited Australia in March."The loan is for Indonesia reconstruction andnot just for Aceh," Bakrie said, During his visitfor a bi-lateral Joint Ministerial Meeting,Australia and Indonesia agreed to formthe Australia Indonesia Partnership forReconstruction and Development (AIPRD),chaired by leaders of both countries. "The forumwill decide how much will actually go to Aceh,"Bakrie says.He was especially pleased that Australia hasagreed to use some of the funding for training."It is our wish that donor countries agree to letus use the money on training. One-third of thelecturers from the University of Aceh passedaway in the tsunami." (The World Bank'sCountry Manager for Indonesia, Andrew Steer,told ATI in January that half of the province'scivil servants were killed).Bakrie says the Japanese have delivered, witha grant of US$147 million. "We have signed aUS$300 million grant with the AsianDevelopment Bank. They are also offering concessionaryloans of about $250 million. This is ontop of what the ADB will contribute under thearrangement of the Consultative Group onIndonesia." Bakrie says the CGI has pledgedUS$1.7 billion for 2005, which will be dispersedthis year.As for other countries, he is awaiting confirmationof their aid offers. "All I know is what Iread in the newspapers. I read that citizens inthe EU have pledged 1.4 billion euro and the ECwill offer 300 million euro. I also read in thepapers that US citizens have raised US$800 millionfor tsunami victims."THE REGIONAustralia, Japan deliver — butother aid pledges still missing❝ The Bush Administrationhas pledgedUS$950 million. I readthat the money is forall the tsunami-affectedcountries. I do notknow how muchIndonesia will get.❞Aburizal Bukrie:What will we get?The Bush Administration has pledged a totalof US$950 million, including US$124 million forthe three months of relief effort. "I read that themoney is for all the tsunami-affected countries.I do not how much Indonesia will get."Now that Indonesia has published its 12-volumereconstruction plan, it hopes that donorcountries will start to release funds.Reconstruction of Aceh has formally begun, andJakarta faces a tough job in accommodating thewishes of donor countries. Most, understandably,seek to undertake highly-visible projects."Our approach will be — if several donorcountries want to rebuild a particular project,we will have to divide it. For example, at leastfour countries want to rebuild the main highway.We might have to cut it into four sectors sothat each of the four countries will have a pieceof it." The 285-km highway on the Indian Oceanhas been seriously damaged, with sectionswashed away by waves.The Government has listed the highway as apriority, along with hospitals, schools andmosques. "There are no shops, no businesses inAceh, and we have to rebuild all of that. Shopshave been washed away. Water treatmentplants, electricity and other infrastructure weredamaged," says Bakrie.When foreign aid finally arrives, he says theGovernment will channel the money in fourdirections. Australia is the only country that willmanage its aid on a bilateral basis. Other donorcountries would like to go through multi-donortrust funds, managed by the World Bank. TheAsian Development Bank will manage its ownfunds, and some countries are willing to putmoney into the Indonesian budget.The non-government organisations (NGOs)have received a lot of money which is not coordinated.Says Bakrie : “We hope that for thereconstruction and rehabilitation, the NGOswill accept the Government's co-ordinated planand work with us. I do not want to see too manyhouses built in one region when nobodywants to live there."8 | ASIA TODAY INTERNATIONAL APRIL 2005

THE REGIONECONOMIC PLANNINGMalaysia looks toChina as it boostsservices sectorMALAYSIA is broadening its economic base into construction,healthcare and educational services, accepting that it is nolonger a cost-competitive location for labour-intensive industries.Malaysia’s Minister for International Trade and Industry,Rafidah Aziz, sees China as a mutually-beneficial business partnerin a number of sectors . . .by Florence ChongEditor, ASIA TODAY INTERNATIONALRafidah Aziz: Malaysia’s investment,expatriate employment policies havebeen liberalised.KUALA LUMPUR — Malaysia hasincreased its focus on the services sector as itattempts to develop a second string to its exportbow.Malaysia's long-time Minister forInternational Trade and Industry, Rafidah Aziz,says that while the manufacturing sectorremains a main source of growth for Malaysia, itis imperative that Malaysia broaden its economicbase. "Feedback from various sectorsindicates that Malaysian service providers areexpanding the export of their services overseas,"she told ATI.Rafidah lists three key sectors — construction,healthcare and educational services —pointing out that the international managementfirm AT Kearney in a recent report saw Malaysiaas a rising alternative to India and China for offshoreservices. Malaysia wants to attract companiesfor shared services and business processoutsourcing.Last year, based on Construction IndustryBoard Development data, Malaysian companiessecured eight infrastructure projects worthRM1.587 billion in India, Cambodia, the UnitedArab Emirates, Singapore, Qatar and Sudan.These projects panned through highways, airportupgrading, water works and structuralsteel works.Rafidah says Malaysian hospitals treatedalmost 130,000 foreign patients in the first ninemonths of last year, generating an estimatedM65.5 million in revenue. This compared with103,000 patients treated in 2003. And Malaysiahad almost 26,000 foreign students. Export revenuegenerated from the educational sector in2004 was about RM778 million.Malaysia hopes to target China for its services.Many Malaysian companies are keen toundertake construction and management ofwastewater treatment plants, water supplywork and city gas distribution projects on abuild, own and transfer basis. She says thatwith the 2010 Asian Games being held in thesouthern Chinese province of Guangdong,Malaysian companies can find opportunities tohelp finance and construct facilities. These projectscan be undertaken in joint venture withChinese companies. Other areas of businesscollaboration with China can be in infrastruc-ture, especially with the 2008 Beijing Olympics.On education, Rafidah says twinning programmeswith foreign universities in the UnitedKingdom, the United States and Australia canenable Chinese students to obtain foreigndegrees in Malaysia at a lower cost. And whileChinese may not be ready to travel overseas formedical care today, she sees China's large populationas a strain on the healthcare budget.With improvement in standards of living, manyChinese will eventually demand better medicalcare in modern hospitals as they will be able toafford it.China's rise as a global manufacturing basehas siphoned off much foreign investmentwhich, in the last decade, was originally destinedfor countries like Malaysia. Says Rafidah:“As Malaysia is no longer a cost-competitive❝ Malaysian companieslast year secured eightinfrastructure projectsworth RM1.587 billion inIndia, Cambodia, the UAE,Singapore, Qatar andSudan. Malaysian hospitalstreated 130,000 foreignpatients in the firstnine months of 2004 ❞location for labour-intensive operations, theGovernment is encouraging labour — intensivemanufacturing to relocate to cost-competitivecountries like China. “Malaysia sees China as amutually beneficial business partner," she toldATI.China has become a significant market forMalaysian products, especially edible oils, rubberproducts and electronic and electrical partsand components, and China's high rate ofgrowth continues to create demand for consumergoods, industrial and infrastructuregoods. Malaysia’s exports to China rose 24.2 percent, reaching a new record of RM32 billion in2004 — up six-fold since 1997.Malaysia's exports to China grew 30.7 percent in the first nine months of 2004. Malaysiais seeking to expand trade with China, Japanand Korea through bilateral and regional initiatives.Trade between Malaysia and these threecountries totalled US$43 billion from January toSeptember 2004.The timetable for an ASEAN-China FTA is2010. But China has concluded what is knownas an "early harvest programme" with ASEAN.This was implemented at the start of last year,and, in the first 11 months of 2004, Malaysia'stotal exports to China under the programmeamounted to RM2.1 billion.Malaysian companies invested US$3.1 billionfor the period 1996 to 2003 in China, whilecumulative Chinese investment in Malaysiatotalled US$1.2 billion. Rafidah says China isamong the countries from which Malaysiahopes to attract more investment.She says Malaysia's investment rules havebeen liberalised to allow foreign companies toown 100 per cent of a company, and that manufacturingcompanies no longer have to complywith equity or export conditions. Other relaxationsinclude expatriate employment policiesfor the manufacturing and related services sectors."The Malaysian Government continues toprovide a conducive and cost-competitive environmentfor foreign investors," says Rafidah.Between 1996 and 2004 (January toNovember), total investment in Malaysia averagedaround RM 25.3 billion, of which 55 percent was foreign direct investment. Foreigninvestors mostly go into electronic, petroleumand base metal products.Rafidah says the Government is promotingnew growth areas to diversify its manufacturingbase and to counter competition from China fortraditional manufacturing activities. Growthareas include information and communicationstechnology, biotechnology, optics, photonics,nanotechnology, medical devices and advancedmaterials. She says foreign investment remainscrucial for Malaysia's industrial development.Foreign investors bring technology transfer,capital and access to international markets.Despite increased competition, especiallyCONTINUED PAGE 11 ➔ASIA TODAY INTERNATIONAL APRIL 2005 | 9

BUSINESS ACTIONTHE MONTH IN REVIEWThe informationheartbeat of AsiaASIA PULSE is a jointventure involving the resources of(AAP) - AAP Information Services PtyLtd (Australia); (CNA) Central NewsAgency (Taiwan), (IRNA) - IslamicRepublic Newsagency (Iran);(ANTARA) - LKBN ANTARA(Indonesia); (Nikkei) - Nihon KeizaiShimbun Inc (Japan); (ONA) - OmanNews Agency (Oman); (PPI) - PakistanPress International (Pakistan); (PNA) -Philippines News Agency(Philippines); (PTI) - The Press Trust ofIndia Ltd (India); (VNA) - VietnamNews Agency (Vietnam); (Xinhua) -Xinhua News Agency (People'sRepublic of China); (Yonhap) - YonhapNews Agency (Korea); and sources inMalaysia and Singapore.US$1 TRILLION NEEDED FOR EASTASIA INFRASTRUCTUREMANILA — Developing countries in East Asianeed to spend more than US$1 trillion over thenext five years on roads, water, communications,power and other infrastructure to copewith rapidly-expanding cities, increasing populationsand the growing demands of the privatesector, according to a new study released by theAsian Development Bank, Japan Bank forInternational Co-operation and the World Bank.After the economic crisis of the 1990s, privateinvestment in infrastructure dropped off forcountries like Indonesia and the Philippines,while countries such as Laos and Cambodiacontinue to attract little or no private infrastructurefunds.SEOUL, CHINA FTA STUDYSEOUL — South Korean and Chinese State-runthink-tanks agreed March 20 to start joint feasibilitystudies on concluding a free trade pact.The agreement requires the Korea Institute forInternational Economic Policy and the ChinaState Council’s Development Research Centerto carry out exploratory research on the subject,South Korean officials said. The two institutesplan to host two research meetings this year todiscuss trade, investment and other matters ofmutual concern.DALIAN TO BECOME CHINA'SBIGGEST PETROCHEM PORTBEIJING — China’s Dalian PetrochemicalCorp has received approval to build 50,000-tonne and 30,000-tonne oil terminals fromPetroChina, according to the LiaoningProvincial Development and ReformCommittee. With an investment of 190 millionyuan ($22.9 million), the project is scheduled tostart in early 2006 and will take 18 months tocomplete. Upon commissioning, the wharf isexpected to be China’s largest crude oil andpetrochemical facility, with an annual throughputcapacity of 24 million tonnes.CHINA-AUSTRALIA TALKS ONURANIUM SUPPLYCANBERRA — Australia and China havebegun negotiations on a treaty which wouldallow uranium to be bought by China withappropriate safeguards in place, Australia'sForeign Minister Alexander Downer toldFederal Parliament on March 17. China inFebruary expressed an interest in buyingAustralian uranium, indicating it would be preparedto obey laws preventing it from beingused for military purposes.NIDEC INVESTING IN VIETNAMKYOTA — Japan's Nidec Corp is to more thandouble its investment in Ho Chi Minh City's SaiGon Hi-Tech Park (SHTP) under a new US$500million contract signed in Kyoto by Nidec presidentShigenobu Nagamori and SHTP chiefPham Chanh Truc. During a visit to Ho ChiMinh City last year, Nagamori said his companywould invest US$200 million to build facilitiesto produce optical pick-ups — componentsfor data-reading — as well as other precisiondevices for cars, PCs and digital equipment.HSBC EXPANDS IN INDIALONDON — To support rapidly-growing retailand commercial businesses, HSBC is to investUS$240 million to expand its operations inIndia. The investment would boost HSBC's capitalbase in India to US$800 million. India is oneof four key growth markets identified by HSBC,along with China, Brazil and Mexico.T-COMMERCE CASH COW IN TAIWANTAIPEI — Television commerce, better knownas T-commerce, is a new cash cow industrypoised to change Taiwan's consumer purchasinghabits as well as create a new marketingsystem for traders. Addressing a symposium onintegration of service industries and the inspirationof T-commerce, Government InformationOffice Director-General Lin Chia-lung said thatT-commerce generated business worth aboutUS$1 billion in Taiwan in 2004, an amountexceeding the total yielded by all cable TVchannels in Taiwan the same year. Lin said thatT-commerce operators were optimistic thatsimilar businesses will shoot up by as much asUS$3 billion in three or five years.© Asia Pulse Pte Ltd.Each day Asia Pulse creates up to 300 items of news, business opportunities,expert commentary and industry profiles covering over 30 countries and over 50industries across Asia. Asia Pulse is a unique joint venture involving the resourcesof Asia's major news and information groups.SOUTH KOREAN FIRMS LIFT PROF-ITABILITY SHARPLYSEOUL — South Korea's listed companiesshowing big changes in their performances in2004 saw gains in their profits far exceedingsales growth, according to the Korea StockExchange. The combined nett profit of 379 suchcompanies surged 69.9% from a year ago toUS$45.86 billion in 2004, with their total operatingprofit soaring 36.8%, while combined revenuegrew a mere 19.6%, it said.SOUTH KOREAN BANKS POSTRECORD HIGH EARNINGSSEOUL — South Korean banks posted recordnett profits last year thanks to increased interestincomes and falling bad debt expenses,financial sources said. The combined bottomline of the nation's 19 banks amounted toUS$8.72 billion, surpassing the previous recordof approximately US$5.61 billion in 2001, thesources said. It also represented more than afive-fold increase from about US$1.7 billion in2003, and the fifth consecutive year of nett profitsby local banks since 2000. The sourcesattributed the surge to expanded loan-depositspreads and falling bad debts.TAIWAN GROWTH TIPPED AT 4.21%TAIPEI — Taiwan is expected to post economicgrowth of 4.21% for the whole of 2005, whilethe first quarter rate will register 4.03%, theCabinet-level Directorate General of Budget,Accounting and Statistics (DGBAS) reported.Affected by a global economic slowdown,DGBAS forecasts that the economic growththis year will not achieve the 5.71% seen in2004. DGBAS statistics also showed the economyis expected to grow by 4.08% in the secondquarter this year, with the third quarter at 4.24%and fourth quarter at 4.46%.VIETNAM TO BUILD THERMO-ELECTRIC PLANTHANOI — Four State-owned commercialbanks and the Vietnam Insurance Corp (BaoViet) will invest US$126 million in Vietnam'sbiggest thermo-electric power project in thenorthern port city of Hai Phong. A contract hasbeen signed in Hanoi by the Bank forInvestment and Development of Vietnam(BIDV), the Foreign Trade Bank of Vietnam(VCB), the Bank for Agriculture and RuralDevelopment (AgriBank), the Industrial andCommercial Bank (ICB) and Bao Viet.Construction of the US$612 million project isscheduled to start this year.NOKIA SOFTWARE PARK FOR CHINAHELSINKI — Finland’s Nokia is to build theNokia Software Park in Zhejiang Province, easternChina, within the first half of this year. Anextension of the company's Hangzhou R&Dfacility, the new centre would focus on softwaredevelopment, Nokia said. During 2004 Nokiaattained a dominant position in the Chinesemobile phone market and the 3G equipmentmarket in the greater China region.Contact: Asia Pulse Production CentrePhone: (612) 9322 8634Fax: (612) 9322 8639http://www.asiapulse.comEmail: asiapulse@asiapulse.com.au10 | ASIA TODAY INTERNATIONAL APRIL 2005

THE REGIONECONOMIC PLANNING➔ FROM PAGE 9from China and India, Rafidah says Malaysiaremains competitive. In the three years to 2003,the main foreign investors were the US withUS$4.2 billion; Germany US$2.5 billion; Japan$US2.2 billion; Singapore US$1.7 billion and theUnited Kingdom US$1.3 billion. Together, theyaccounted for almost 70 per cent of total foreigninvestment in Malaysia.Exports remain Malaysia’s lifeblood. Rafidahsays merchandise trade has grown an averageby 8.8 per cent annually since 1994. In the ninemonths to September last year, exports toalmost all marketsshowed strong growth.West Asia was thefastest-growing market— up 40 per cent overthe previous period,but from a small base ofRM9.6 billion.While key markets remain the United States,Japan and the European Union, Malaysia hasexperienced its best growth from intra-ASEANtrade, which grew 23 per cent last year compared,with growth of 21.5 per cent with the EU,17.8 per cent with the US and 15.3 per cent withJapan. Malaysia has started to tap new marketsin Russia, West Asia, India and Hungary.As a member of ASEAN, Kuala Lumpur supportsASEAN's negotiation for individual FTAswith China, Japan, Korea, India, Australia andNew Zealand, Rafidah told ATI. On a bi-laterallevel, Malaysia is working on an economic partnershipwith Japan and a US trade and investmentframework agreement with the US.As she sees it, Malaysia has a role as a gatewayto the ASEAN market, and Malaysia isoffering incentives, including pioneer statusand investment tax allowances, to foreign companieswhich use Malaysia as a gateway toASEAN. As a market itself of 20 million,Malaysia offers economy of scale.Rafidah expects trade with ASEAN toexpand further now that the ASEAN Free Trade❝ Malaysia is offering incentives, including pioneer status,to foreign companies which use Malaysia as a gatewayto ASEAN❞Agreement (AFTA) has been implemented.ASEAN has identified 11 sectors for acceleratedtariff reduction — to be completed in 2007,instead of 2010. She says ASEAN is strengtheningthe ASEAN dispute settlement mechanismand also co-operation in trade facilitation measures.Under the AFTA agreement, ASEAN willbecome a free trade bloc with a population of530 million.Malaysia’s ASEAN neighbours absorbed aquarter of Malaysia’s total exports last year — apercentage that is set to grow with further liberalisationof intra-ASEAN trade. Under what isknown as the Common Effective PreferentialTariffs (CEPT) scheme, Malaysia's exports lastyear rose 58.2 per cent. Thailand remained itsmajor export destination under this scheme.Rafidah expects exports to Indonesia, thePhilippines and Singapore, which have alsoincreased under the CEPT scheme, to show furthergrowth in future.Growth in exports to ASEAN offset thedecline of Malaysiaís share in its key markets —the US, Singapore and Japan. The share ofMalaysia's exports to these markets declinedfrom 46 per cent in2003 to 43.9 per cent in2004. But Rafidah saysthis is due to significantexpansion inexports to other markets.Malaysia's goodexport performance was buoyed by high globaldemand for electrical and electric products.Higher prices and volumes of commoditiessuch as palm oil, crude petroleum and LNG alsoplayed a role.Rafidah says that with strong fundamentals,the economy is expected to grow six per centthis year, but its performance will be influencedby global events. The unemployment rate is lowat 3.4 per cent, and Malaysia’s internationalreserves stood at US$55.5 billion September 15,2004 — sufficient to finance 7.2 months of retailimports.Malaysia seeking‘comprehensive’ FTAwith Australia❝ Malaysia is keen toattract Australianinvestment into targettedareas in the servicessector and to establishcollaborative programmesin finance,education, tourism andICT❞CANBERRA — Scoping studies currentlybeing undertaken by both Canberra andKuala Lumpur into the feasibility of launchingnegotiations for a Free Trade Agreementbetween Australia and Malaysia are nearingcompletion.Canberra sources say these are parallel studieswhich the two countries agreed to undertakewhen it was first proposed they look at thepossibility of an FTA. Australian trade negotiatorshave "substantially" completed their study.It is likely that Malaysia will also complete itsstudy in time for the first Prime Ministerial visitto Australia by a Malaysian leader in more thantwo decades, when Abdullah Badawi visits(April 7-9).The idea of an FTA was first mooted last yearwhen Malaysia’s Minister for InternationalTrade and Industry, Rafidah Aziz, was inAustralia for a joint Ministerial meeting withher counterpart, Mark Vaille.Rafidah told ATI she sees benefits in havinga trade agreement in at least five broad areas ótrade liberalisation through tariff elimination;trade facilitation; investment expansion; facilitationof trade in services; and enhanced economicco-operation. Malaysia aims for a "comprehensive"agreement to cover all sectors.Taking the interests of the business communityas a guide, the thrust of the negotiations willbe on biotechnology and agri-business, pharmaceuticals,chemicals and ICT (informationcommunication technology).Such an agreement would also explore sectorsin which Australia and Malaysia can cooperate.Rafidah lists the food sector (halal foodprocessing); manufacturing research anddevelopment, biotechnology; agribusiness; andmutual recognition of qualifications.She says Australia was Malaysia's 14thlargesttrading partner in 2003, with total tradevalued at RM14.7 million. "Clearly, there ismuch scope for expansion of trade between thetwo countries," she says.She believes trade liberalisation will increasecompetition, which in turn will leader togreater efficiency of domestic industry.Malaysia will use the opportunity to addressissues of trade facilitation on a "more concerted"reciprocal basis. Malaysia also looks forwardto negotiating a Mutual RecognitionAgreement with Australia on standards andaccreditation of institutions and qualifications.As well, she says the FTA negotiation willaddress non-tariff barriers.Increasing investment is another driver foran FTA. Australia, with investment totallingRM594.1 million in 2003, is one of the smallestforeign investors in Malaysia. But in 2003,Australia was the 12th-largest destination forMalaysian overseas investments, whichtotalled RM820 million — concentrated in theproperty and services sector. It is hoped that anFTA would help increase awareness of investmentpotential in both countries through jointventures and strategic alliances.Malaysia is particularly keen to attractAustralian investment into targetted servicessector, and to establish collaborative programmesto build capacity in finance, education,tourism and ICT. Overall, an FTA wouldallow greater market access and offer preferentialtreatment in services sectors of interest,Rafidah says. Ultimately, she sees the greatereconomic integration leading to closer businesspartnerships that involve transfer of technologyand skills.COPYRIGHT ©: All material appearing in ASIA TODAY INTERNATIONALis copyright and remains the property of the publisher, East Asia Newsand Features (Australia) Pty. Limited. Reproduction in whole or in part inany form is not permitted without written permission of the publisher.ASIA TODAY INTERNATIONAL APRIL 2005 | 11

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THE REGIONIran throwsdown thegauntlet on LNGMEETING ASIA’S ENERGY GAPAndrew SymonASIA TODAY INTERNATIONALCorrespondentPETROLEUM developmentin Iran geared to meetingAsia’s hunger for energy isadvancing — despite US economicsanctions and growingtension between Tehranand Washington. Iran hassigned off deals with bothChina and India...SINGAPORE — Major non-American,western companies — and Asian companies —are taking supply positions upstream in oil andgas-rich Iran and, on the demand side, signingpurchase agreements even though they risksanctions being imposed on business intereststhey have in the US.Iran’s natural gas reserves especially havebecome an attractive prize. While historicallymuch greater priority has been given to oil —with the Islamic state exporting east and west2.6 million barrels a day of its total four millionbarrels a day production — the export potentialof natural gas is now being embraced byTehran, foreign companies and Asian governments.With the world’s second-largest provenreserves (942 trillion cu ft) after those of Russia,Iran promises to become a key exporter of liquefiednatural gas (LNG) to markets east of Suez.The LNG industry, built around a transportationtechnology where natural gas is liquefied,shipped to consumers and then returned to itsgaseous state, is projected to at least double insize in the coming decade as demand grows,plants are expanded and new ones built, supplyprices fall and commercial contracts becomemore flexible.The Australian Government’s AustralianBureau of Agricultural and Resource Economicsforecasts LNG demand in the Asia Pacificregion at 150 million tonnes by 2015 comparedwith 75 million tonnes in 2002 (table page 15).Tehran has ambitions for LNG export productionof 40 million tonnes per year of LNG. Fourseparate plants are proposed, fed by the vastSouth Pars gasfield offshore the mid-southcoast. This would mean revenue of the order ofUS$10 billion a year at today’s prices.While industry consultants say it is unlikelyany plant will be in operation before 2010,warning that Iranian Government contract conditionscan make petroleum projects difficult toadvance commercially, Iran’s potential as anLNG supplier — given Asia’s energy needs —Natural gas liquefaction facilities at the Petronas-run Bintulu plantin Sarawak.seems to ensure that the Middle East state willemerge as a major gas exporter.This is underlined by recent agreementsbetween the State-owned National Iranian OilCompany (NOIC) and the Chinese and IndianState petroleum companies, Sinopec andONGC. These preliminary agreements featurelong-term supply of Iranian LNG and participationby the Chinese and Indian companies indevelopment of oil and gas fields in Iran. Newoil output would also be sold to Chinese andIndian markets.“China and India have realised that packagingtheir potential LNG demand as a means ofcreating baseload sales to enable the launch ofIran LNG plants allows them a quid pro quo toget into Iran upstream, particularly oil,” says AlTroner, Managing Director of Seattle-basedAsia Pacific Energy Consulting.Although US energy companies have beencompletely barred from any business with Iran,Sinopec, ONGC and other non-US companiesseem undeterred by US policy, or concerns thatthe Middle East state is a supporter of internationalterrorism and seeking nuclear weaponscapacity. Iran holds 11 per cent of the world’s❝ With the world’ssecond-largest provenreserves (942 trillion cu ft)after those of Russia, Iranpromises to become a keyexporter of LNG to marketseast of Suez. ❞proven oil reserves, is OPEC’s second largest oilproducer, and has 15 per cent of the world’sproven natural gas reserves.It is not only the new energy-consuminggiants, India and China, that are turning to Iran.Japanese companies are also moving upstreaminto Iranian oil production. A consortium led byInpex signed an agreement last year with NIOCto develop the reportedly huge Azadeganonshore oil field in Iran’s southwest for supplymainly to JapanOther major companies already operating inIran are Anglo Dutch Shell, British Gas, Total ofFrance, Russia’s Gazprom, Italy’s ENI/Agip,Norway’s Statoil and Norsk Hydro, Canada’sBow Valley Energy, Malaysia’s Petronas andChina’s CNPC.US measures imposed against Iran becauseof its support for international terrorism anddevelopment of weapons of mass destructionban both investment and trade by US companiesin and with Iran, and threaten sanctions onnon-US companies investing in Iran’s petroleumsector, the mainstay of Iran’s economy.Preventing development of the petroleum sectoris argued as a way of inhibiting funding ofterrorism and weapons development.Non-US companies which invest US$40 millionor more in Iran’s petroleum sector may havesanctions imposed on any business activitiesthey have in the US.Until now, the latter sanctions have proved tobe a paper tiger. Offending foreign companieshave escaped sanctions because, as providedunder the 1996 Iran-Libya Sanctions Act, theUS President has been able to waive sanctionson the basis that they would either not be in thegreater national interest of the US or becausethe offending company’s country has agreed toundertake measures to inhibit Iran’s activitiesin support of terrorism and acquisition ofweapons of mass destruction.Now, with Iran becoming more a focus of theUS Bush Administration’s Middle East policy inthe last year, with fear that Tehran is developingnuclear weapons capacity, a lobby for sterneraction against offending foreign companies isgrowing. A Bill is before Congress to strengthenand expand the 1996 Act.Washington's concerns were underlined duringthe visit of the new US Secretary of State,Condoleeza Rice, to New Delhi in mid-March.Rice told India’s leaders the US opposed developmentof a gas pipeline from Iran to nothernIndia.The 2,700-km pipeline from the South Parsfield running through Pakistan has long beenmooted. But its development has been hinderedby the difficulty of supplying gas at a lowenough price to enter South Asian markets.Another obstacle is the waxing and waningof relations between India and Pakistan.Concern remains in India over the possibility ofgas supply being interrupted by Pakistanshould relations between the two countriesdeteriorate.Iran claims its nuclear programme is forCONTINUED PAGE 15 ➔ASIA TODAY INTERNATIONAL APRIL 2005 | 13Greg Suharsono/ATI

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THE REGION➔ FROM PAGE 13power generationonly. To defuse tension,France,Germany and the UKmade an agreementin November withIran that it wouldtemporarily freeze itsnuclear enrichmentprogramme in returnfor various economic,technological,political and securitybenefits from theEuropeans.One oil major thatis wary of offendingWashington is BP.The UK group,which has largeupstream and retailinterests in the US asa result of itstakeovers of Arcoand Amoco in thelate 1990s, has clearlydeclared its intentionto stay out ofIran in view of USpolicy. Although BPhas historical tieswith Iran — pioneeringoil production inthe early 20th centuryas the Anglo-Asia Pacific Liquefied Natural Gas DemandOutlook (million tones) 1JapanSouth KoreaTaiwanIndiaChinaPhilippinesThailand*Singapore *Hong Kong*Indonesia*New ZealandNorth Americanwest coastTotal2002 2010 201553.0 59.3 61.417.0 23.8 32.95.1 11.1 12.18.1 11.07.7 18.31.0 1.7Yudyono, who has declared restoringIndonesia’s credibility in the eyes of foreigninvestors as one of his main goals.Tangguh, in the Bird’s Head region of westernPapua, will supply initially 7.6 million tonnesof LNG from two trains. Another two trains areplanned longer term. Sales contracts have beensigned for supply to China, South Korea andMexico — where the gas will support powergeneration for both Mexico and California (inthe US).This, along with a supply contract from theShell-operated Sakhalin LNG facility in theRussian Far East, are the first contracts from theAsia Pacific for supply to the North AmericanWest Coast, which many see emerging as alarge market rivalling that now in Japan, theworld’s largest consumer of LNG. First shipmentsfrom Tangguh are to be made in 2008.The project’s advance had been delayed bynegotiations between the Tangguh consortiumand the Government over extension ofupstream contracts over three blocks whosefields supply gas for liquefaction. In early Marchthe Government agreed to extend the contractsuntil 2035, thereby providing BP and its partnerswith the long-term certainty they wantedin order to invest forward in the project.The development cost includes upstreamfield and pipelines, liquefaction plant and shipping.BP is the project operator with partnersNippon Oil, Mitsubishi/Inpex, Kanematsu, andLNG Japan (a consortium of Japanese companies),and CNOOC, the Chinese State-controlledpetroleum company. Onshore engineering,procurement and construction will be carriedout by a consortium led by Kellog, Brownand Root, a subsidiary of Halliburton of the US.The Italian company Siapem will build the offshorefacilities.????1.3 2.27.0 10.075.1 119.2 149.71 each million tonnes per year of LNG can fuel 1,000 megawatts of powergeneration capacity* all now studying possible LNG imports after 2010; in Indonesia’s case Javacould take LNG from domestic plants in Kalimantan or Indonesian PapuaSource: Australian Bureau of Agriculture and Resource Economics (Nov2004) and ATI.Persian Oil Co, and then Anglo-Iranian, beforebeing renamed BP — the company says it hasno interest currently in returning.The Chief Executive of BP, Lord Browne,says that “to do business with Iran at themoment would be offensive to the UnitedStates and therefore against BP’s interests.”“We are heavily influenced by our Americanposition,” he adds.BP givesgreen lightfor US$5b.LNG pojectTHE US$5 billion TangguhLNG project in IndonesianPapua is to go ahead, withdeals already signed for gassupply to China, South Koreaand Mexico . . .SINGAPORE — BP and its partnersgave the green light in March for constructionof the US$5 billion Tangguh LNG project inIndonesian Papua.Tangguh is Indonesia‚s largest foreigninvestedproject since the fall of Suharto in1998. BP‚s commitment will be welcomed byIndonesia’s new President, Susiliyo BambangMEETING ASIA’S ENERGY GAPTangguh is BP’s main biggest upstream projectin Asia since the completion in Vietnam ofits Nam Con Son gas field, pipeline and powerplant development in 2002, and promises toestablish BP among the main LNG producersfor the Asia Pacific market.For Indonesia, currently the world’s largestLNG exporter, Tangguh will make up forsharply-declining production from the AruhLNG plant in Aceh in northern Sumatra, operatedby Indonesia‚s State oil company, Pertamina,Gas fields operated by ExxonMobil are depletingrapidly, and there has been little new explorationbecause of the conflict between Jakartaand Acehnese separatists. Indonesia’s mainLNG plant is the Bontang facility in EastKalimantan, operated by and supplied by gasfields operated by Total and Unocal.Tangguh faces not just technical and commercialchallenges. The development, and thehuge future revenues associated with it, are atthe centre of political relations between Jakartaand Papua. At today’s prices, the sales outputvalue of the first two trains is more than US$2billion a year. Revenue will flow for severaldecades given the size of Tangguh‚s supportinggas reserves.Jakarta is providing more autonomy toPapua, with its predominantly Melanesian population,in order to defuse separatist pressures.As part of this, the bulk of gas revenues are earmarkedfor direct allocation to the local area.Concern remains, though, as to how revenuewill be best managed for the welfare of the noweconomically very poor local communities. BP,while not wanting to play the role of a de factogovernment, is finding there are high expectationsthat it will assist in local development.To demonstrate its efforts in regard to ensuringthat the project’s community impact is beneficialand also that its environmental impact isminimal and acceptable, BP has established anexternal monitoring and advisory panel includinga former Indonesian Ambassador, Sabam❝Tangguh will make upfor sharply-declining productionfrom the AruhLNG plant in Aceh innorthern Sumatra, operatedby Pertamina ❞Siagian, Papua’s Reverend Herman Saud,Senator George Mitchell of the US, and LordHannay of Chiswick in the UK. The panel’sreports and recommendations and BP’sresponses are published on BP’s company website.In this way, BP hopes to avoid problems experiencedin the past by other large resourcesdevelopment projects in Indonesia, such asFreeport’s copper and gold mine in easternPapua, and more recently the Newmont goldmine in Mihahasa, in northern Sulawesi. Theseand others are accused of disregard for theinterests of local peoples — and of badly damagingthe local environment.— Andrew SymonASIA TODAY INTERNATIONAL APRIL 2005 | 15

SHIPPING REVIVAL IN INDIAOCEANIA23 years ofAward-winningServices to AsiaFREIGHT RATE HOTLINE 1800 000 686Shippers in the know ship COSCO– for Five Star Customer Service!Reliability and Service.A great Five Star tradition.Five Star Shipping and Agency Company Pty Ltd(a wholly-owned COSCO Group Company)Sydney: Tel (02) 9373 9588 Fax (02) 9299 7988Melbourne: Tel (03) 9258 2600 Fax (03) 9614 6260Brisbane: Tel (07) 3215 1100 Fax (07) 3220 0234Fremantle: Tel (08) 9336 4238 Fax (08) 9336 4231Adelaide: Burns Philp Shipping Tel (08) 8447 5655 Fax (08) 8341 1827Ship COSCO for Five Star ServiceCURRENCIESUS dollar fallmay boostUS growth-Fed studyWASHINGTON — A substantial fall inthe value of the US dollar is unlikely to cause aneconomic crisis as feared by some economists,according to a study by the US Federal Reserve.Instead, based on past experience, the studyfound that a lower dollar is more likely to boosteconomic growth in the US.Debate has been mounting — on fears of acollapse of the US dollar — because of the sizeof the US deficit. It is a debate perhaps evenmore relevant now that Asian central banks arethreatening to, or have already diversified, theirreserves into other currencies, potentially causinga rapid sell-down of their holdings in US dollarsand US dollar-denominated papers, like USTreasury bonds.The US central bank undertook the studyamid a growing chorus of concerns about howthe unravelling of the US current account deficitwould impact both the US and globaleconomies. It said the International MonetaryFund (IMF) and some private economists hadexpressed concerns about the size of the UScurrent account deficit and the likely consequencesof adjustment to that deficit.The study found that the greater the extent ofthe fall in the real value of the US currency, thelarger the increase in economic growth in thedomestic economy. It cautions, however, thatthe conclusions may not apply entirely to theUS economy because it is the largest in theworld and its current account deficit, estimatedat US$600 billion — more than five per cent ofgross domestic product in 2004 — is greaterthan most imbalances of other countries in thepast.The study emphasised that its results aredrawn from research into current accountadjustments in industrialised economies. Itlooked at the experience of many developingeconomies over the past decade after a financialcrisis — for example, Mexico in 1995, theAsian countries in 1997-98, and most recently,Argentina after 2001. It says its analysis certainlypoints to an association between currentaccount adjustment and contractions in GDP,especially when a currency crisis accompaniesthe current account reversal.The study found that exchange rate depreciationtends to lead to an expansion of theeconomies of industrialised countries. Theopposite, however, is true of developingeconomies. It says one possibility appears to bethat developing economies are reliant on foreigncurrency-denominated debt.Based on its analysis, the study found thatdevaluation of the US dollar will not impact onUS economic growth, saying that there hasbeen little evidence to support the theory thatthe US economy would be disrupted. The UScurrent account adjustment of the late 1980s,says the study, is the only similar episode inwhich GDP growth exceeded 2.5 per centbefore, during and after the onset of currentaccount adjustment.16 | ASIA TODAY INTERNATIONAL APRIL 2005