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Saturday, November 10, 2007

The 3 divas keep the Indonesian economy on track

By Sara Webb Reuters
Published: November 8, 2007

JAKARTA: They are called the three divas, but the three most powerful women in Indonesia are anything but prima donnas.

They are economists who together are setting the biggest economy in Southeast Asia on track for its fastest growth in 11 years.

Finance Minister Sri Mulyani Indrawati, Trade Minister Mari Pangestu, and the central bank's senior deputy governor, Miranda Goeltom, form an unusual clique in a country where the establishment is dominated by men.

"We know each other very well. The chemistry is always very good between the three of us," Indrawati, a former International Monetary Fund director, said in a recent interview.

While the three play golf and lunch together, Indrawati said she valued the fact that she can discuss economics with the other two, particularly given the isolated nature of her job.
"It's something we can enjoyably share," she said.

"Being a minister of finance, you feel really lonely and alone," she said. "If you are mingling too closely with the business community they will accuse you of being too close, and if you are mingling with the political parties they think you are busy politicking. I have to keep a distance."
Indonesia, the most populous Muslim country, has had relatively few high-profile women in its government.

Its first female president, Megawati Sukarnoputri, owed her position in part to her pedigree - her father, Sukarno, was the first leader after independence.

But while Sukarnoputri, a former housewife, kept a low profile, the three divas are familiar faces at the International Monetary Fund, the World Bank, and the international trade circuit - though some nationalists say they are too cozy with these institutions.

In contrast with many of her tight-lipped foreign counterparts, Goeltom, the central banker, is regularly quoted in the media, most recently on the economic impact of high oil prices.
She often speaks in public, and she is famously unpunctual - a trait that saved her life in 2003, when she was stuck in traffic and arrived late for lunch at the Marriott hotel in Jakarta, missing a bomb attack by minutes.

Now Goeltom and the central bank governor, Burhanuddin Abdullah, are in the spotlight again as economists await further credit easing.

The benchmark interest rate has fallen to 8.25 percent from a high of 12.75 percent in April 2006 after 13 rate cuts, as inflation has eased.

The cuts in rates have triggered domestic consumption, spurring economic growth that is set to hit 6.3 percent this year.

Exports are bouncing back, and foreign direct investment, which faltered on worries about corruption, bureaucracy and legal uncertainty, is close to its 2000 record of $9.8 billion.

One reason for the recovery, Indrawati says, is that reforms are starting to have an effect.
President Susilo Bambang Yudhoyono, a former general, was elected in 2004 on the back of promises to increase growth, create jobs and tackle graft in a country that year after year ranks among the most corrupt.

When Indrawati, 45, was appointed finance minister, she embarked on a cleanup of Indonesia's notoriously corrupt tax and customs departments in a bid to raise state revenues.

The former academic, whose dissertation was on how men and women respond to tax policies, has a tough job ahead of her, as only one Indonesian in 170 pays taxes.

For years, tax bills were often settled by greasing palms, but now it is getting harder for the well-heeled to keep the tax office at bay. Indrawati has replaced corrupt officials and raised salaries for officials in the ministry so they are not tempted to steal or solicit bribes.

Her officers are investigating companies that deliberately understate their profits in order to pay less tax, and they are tracking down wealthy lawyers, bankers, property owners - even platinum cardholders - many of whom get a nasty shock when officials phone or drop by to check on them.

Restoring public trust in government departments and institutions has become an obsession for Indrawati, who said she felt she had at least inspired "a positive and contagious disease, a reform fever" among many tax and customs bureaucrats.

While Indrawati tackles tax issues, Pangestu wants to raise the profile of Indonesian exports.
"Where would the world be without Indonesia?" the trade minister joked recently, pointing out that the country made a substantial portion of the world's zippers, Barbie dolls and false eyelashes.

Pangestu is a rare breed in the cabinet, not just because she is female, but because she is the only ethnic Chinese.

The minority Chinese account for a disproportionate share of the country's wealth, and their success is sometimes resented. An anti-communist coup in the 1960s led to their suppression, and their language, writings and customs were banned or discouraged until relatively recently.

Pangestu has lived in boomtown Shanghai, where many Indonesian Chinese, including some of the country's wealthiest tycoons, keep homes and run their businesses - valuable firsthand experience for an economist charged with turning Indonesia into a roaring Asia tiger once again.

Indonesia News

Friday, 09/11/2007 17:29 WIB72th Uncontrolled Mudflow Occurs in PorongTEMPO Interactive, Sidoarjo: The uncontrolled emissions (spurt) of water mixed with flammable gas occurred again near the Lapindo mudflow in Porong, Sidoarjo, East Java. This time, the new discharge was beside the kampong road, RT 8/RW 1 area, Pejarakan Village, or around 1.5 kilometers South of the Lapindo mudflow center.

Friday, 09/11/2007 16:13 WIBPLN-TNB Malaysia Form a Holding CompanyTEMPO Interactive, Jakarta: The State Electricity Company (PLN) along with Tenaga Nasional Berhad (TNB) of Malaysia will form a holding company for an interconnection transmission network project between Sumatra and Malaysia.

Friday, 09/11/2007 15:22 WIBDoing Business in Indonesia Can be EasyTEMPO Interactive, Jakarta: The rank of ease in business in Indonesia has the chance to go up 41 places from the 123rd to 82nd in 2008. On the condition that the government repairs the mechanism for starting a business, ownership registration and obtaining credit.

Friday, 09/11/2007 14:17 WIBForeign Affair Department Cooperates to Remove Smuggled CarsTEMPO Interactive, Jakarta: The Finance Department is cooperating with the Foreign Affairs Department in eradicating smuggled cars that use a diplomatic facility.

Friday, 09/11/2007 13:07 WIBJakarta's Traffic JamsPrivate Cars to be RestrictedTEMPO Interactive, Jakarta: The government plans to restrict the use of private cars in Jakarta. Transportation Minister Jusman Syafi'i Djamal said the plan is a mid-to-long term effort to overcome the capital city's traffic overcrowding which is just becoming worse.

Friday, 09/11/2007 12:30 WIBAdelin's Acquittal: Kaban Bombarded by CriticismTEMPO Interactive, Jakarta: Chairman of the House of Representatives (DPR), Agung Laksono, asked President Susilo Bambang Yudhoyono to warn Forestry Minister M. S. Kaban, who is suspected of intervening in the judicial process of Adelin Lis, Finance Director of PT Keang Nam Development Indonesia, yesterday (8/11).

Thursday, 08/11/2007 17:34 WIBSoldiers Allowed to Join CampaignsTEMPO Interactive, Jakarta: Soldiers, civil servants and children are allowed to participate in campaigns.

Thursday, 08/11/2007 17:19 WIBWomen's Quota in Political Parties RaisedTEMPO Interactive, Jakarta: The Working Committee of the Draft Political Parties Bill has decided that the quota of women's representation in political parties be raised from 30 percent to 35 percent.

Thursday, 08/11/2007 16:54 WIBGovernment Prepares Budget ScenariosTEMPO Interactive, Jakarta: President Susilo Bambang Yudhoyono has said that the government is preparing action options to anticipate world oil price increases heading towards US$100 per barrel, especially as regards the impacts on the budget.

Thursday, 08/11/2007 14:08 WIBSoutheast Asia to Prevent Spread of Zoonotic DiseasesTEMPO Interactive, Jakarta: Southeast Asian countries are to make a regional strategic framework to prevent and control the spread of zoonotic diseases (diseases that originate from animals) to humans.

Tuesday, December 19, 2006

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Thank you.

Wednesday, May 03, 2006

The Richest in Indonesia

Bisnis Indonesia
By : Christovita Wiloto
CEO & Managing Partner
Wiloto Corp. Asia Pacific

Actually, nothing is unusual about the list of the richest people in the world in 2006 according to Forbes Magazine in its March edition. Indeed, the list now contains 10 newest rich persons from India, making the total richest people from that country into 23 names. While, Russia added seven new names, and pushed the total into 33 people.

But, the names occupying the top two are still the same, Microsoft boss Bill Gates, and veteran investor as well as the owner of Berkshire Hathaway, Warren Buffett. They are worth US$50 billion and US$42 billion respectively.

Underneath them, many popular names occupied the list, one of them is Lakshmi Mittal, the king of steel business from India, reputedly worth US$23,5 billion. What makes it interesting is that Mittal started his business 30 years ago in Surabaya!. Even he still owns PT PT Ispat Indo in Surabaya.

Another familiar names include the part owner of Microsoft, Paul Allen (US$22 billion), Prince Al-Waleed Bin Talal Al-Saud (Saudi Arabia, US$20 billion), the Mexico telecommunication tsar Carlos Slim Helu (US$30 billion), the retail king of IKEA, and Ingvar Kamprad (Sweden, US$28 billion).

What about Indonesia?
Now, was there any Indonesian that made it into the list of Forbes this time? It is easy to predict, the names are associated with the king of cigarettes company namely Rachman Halim, the owner of Gudang Garam, worth US$1,90 billion in the number 410 and Budi Hartono, the owner of Djarum, worth US$1,80 billion in number 428.

I don’t understand why Forbes did not include the name of Aburizal Bakrie and Putera Sampoerna in that March issue. The fact is currently Bakrie family is the richest in Indonesia with assets “reportedly” worth more than US$ 4 billion (around more than Rp 38.8 trillion) and Putera Sampoerna, who recently sold his shareholding in HM Sampoerna worth US$2 billion (around Rp18,4 trillion) to Philip Morris. Maybe, because this information has not reached the Forbes board of editors.

But, the most important thing is how this richest family of Indonesia can made it into the list of Forbes. The family of Rachman Halim a.k.a Tjoa To Hing, for instance, inherited the cigarette factory Gudang Garam, founded in June 1958, from its founder Surya Wonowidjojo.

Gudang Garam itself is the biggest cigarette producer in Indonesia, with the factory covering an area of 514 hectare in Kediri, East Java. This factory employs thousands of people from Kediri and its surrounding. It is no surprise that Gudang Garam becomes the driving force for the economic condition in that city. Without Gudang Garam, maybe Kediri – even though it has Sugar refinery of Ngadirejo – will still only be a small town among various towns and municipalities in East Java.

Halim family itself is no stranger to the label of the richest person. He has been in the Forbes list since few years ago. In Southeast Asia, he even managed to occupy the fourth rank. Likewise with Budi Hartono, also inherited the cigarette company Djarum from Oei Wie Gwan. Together with his brother, Michael Bambang Hartono, both the sons of this conglomerate from Kudus work hard to bring Djarum Group to its prominence even up to overseas.

The perseverance of the founder and manager of Gudang Garam and Djarum is what make them champion in their field. Totally, Gudang Garam and Djarum now has the market share of more than half of the domestic cigarette market. They each have their champion brands that almost become generic, such as Gudang Garam Filter, and Djarum Super. Popularity of these two brands only receives the threat from A Mild by Sampoerna, that is the market leader in the mild cigarette.

The interesting thing is that at the time when Halim family is consistently doing the cigarette business that has been at the core of their business for almost half of the century, Djarum Group decided to branching out into the property and banking business.

In the property, Djarum developed WTC Mangga Dua, Pulogadung Trade Centre and Grand Hotel Indonesia. While in the banking, Djarum owns Bank Haga and Hagakita, as well as 5% shares in BCA through Alaerka, which is a member of consortium Farindo Investment, that owns 51.19% shares of BCA.

The lesson that we can learn is how those Indonesian businessmen worked hard and persevere, able to grow their business and sitting alongside the other world class entrepreneur from all over the world.

Also, they give a major contribution to the people in the surrounding of their factories. They gave contribution also in giving prominence to the Indonesia in the sport arena. Badminton club Djarum Kudus, for instance, becomes the biggest contributor towards the national athletes that often won the international championship.

Meanwhile, we understand also that this kind of company is the biggest taxpayer in this country. Their contribution probably can only be matched by the big state-owned company such as Pertamina, or foreign company like Freeport.

Indonesia, I guess is tired with the black and dark businessmen with their dubious business reputation. Indonesia currently needs to have more businessmen with reputable integrity, respectable, honest, perseverance, hardworker and careful in doing their business, can be a good model for others, and able to sit alongside world-class businessmen.

If necessary, they can acquire also the world class companies in the world for the sake of bringing the glory for our beloved Indonesia.

Sunday, February 26, 2006


Bisnis Indonesia
February 26, 2006

Christovita Wiloto
Wiloto Corp. Asia Pacific

Kita tidak bisa menutup mata bahwa perekonomian nasional kita mulai merangkak mencoba bangkit. Walau dampaknya terutama di kalangan bawah belum terasa. Walau harus diakui pemerintahan nampak cukup konsisten dengan upaya memberantas korupsi. Hal itu dibuktikan dengan banyaknya kasus korupsi yang secara perlahan namun pasti dibongkar habis.

Di luar itu, meskipun tanpa regulasi-regulasi baru, kehidupan industri, termasuk industri petrokimia baik hulu maupun hilir berjalan seperti adanya. Kenyataan ini membuktikan bahwa industri yang bergerak di sektor ini mampu menghidupi dirinya sendiri dan tetap eksis untuk menopang mitra bisnisnya yang lain.

Dalam beberapa tahun terakhir, industri petrokimia (baik hulu maupun hilir), praktis berjalan dan mampu melindungi dirinya tanpa harus minta proteksi pemerintah. Ini jelas berbeda dengan kebiasaan pemerintah kita tempo hari yang sebentar-sebentar mengeluarkan kebijakan yang setengah memaksa yang akhirnya malah menjadi bumerang buat industri ini.

Di tengah semakin terus melambungnya harga minyak dunia, kita tidak bisa pungkiri bahwa salah satu pilar kekuatan perekonomian Indonesia adalah hasil tambang, khususnya minyak dan gas. Selama ini, pengelolaan minyak dan gas bumi di Indonesia lebih difokuskan pada ekspor.

Karenanya kita sayangkan bila sumber daya alam migas Indonesia yang sangat besar ini tidak dikembangkan dalam satu industri yang terintegrasi dari hulu hingga ke hilir. Padahal industri hulu migas tidak kalah penting jika dibandingkan dengan industri hilirnya.
Idealnya pengembangan industri hulu migas inilah yang harus dimanfaatkan sebagai salah satu strategi dalam mengejar ketertinggalan ekonomi Indonesia dengan negara-negara Asia Tenggara lainnya. Misalnya Thailand dan Vietnam, yang telah jauh mengembangkan industri ini.

Potensi Strategis
Dalam soal pengembangan industri petrokimia hulu ini, sebenarnya kita sudah mempunyai potensi strategis. Industri ini memang sempat mengalami krisis keuangan. Tapi lambat laun, industri petrokimia hulu ini secara swadaya terus melakukan konsolidasi dan berbenah diri. Kita tidak bisa bayangkan bagaimana jika industri pretrokimia hulu yang sudah berdiri ini tidak beroperasi, padahal begitu banyak industri hilir yang mengandalkan perusahaan ini, terutama dalam pengadaan bahan baku.

Strategis karena jika industri petrokimia hulu ini tidak beroperasi, otomatis industri hilirnya seperti pabrik tekstil berskala besar maupun kecil akan menyusul mati. Belum lagi para distributor, pedagang tekstil, dan sebagainya. Jika ini terjadi, tidak bisa kita bayangkan betapa repotnya pemerintah, sebab jumlah pengangguran pasti bakal meningkat.

Sebagai gambaran, jumlah pengangguran di Indonesia hingga saat ini masih bertengger pada angka 40 juta orang. Berita-berita yang dilansir media massa, angka pengangguran itu tidak pernah turun. Akhir-akhir ini, media massa bahkan sering memberitakan ribuan orang berbondong-bondong memperebutkan formulir pendaftaran untuk menjadi pegawai negeri sipil (PNS).Bukan cuma itu, acara bursa-bursa kerja yang banyak digelar di sejumlah kota disesaki banyak calon pekerja.

Bahwa industri petrokimia -- baik hulu maupun hilir -- sudah terbukti sebagai industri yang penyebarannya hampir merata di Indonesia menyerap banyak tenaga kerja. Kita harus menggantungkan optimisme bahwa ke depan industri ini harus terus dikembangkan ke arah yang lebih baik.

Mengembangkan industri petrokimia jelas menguntungkan. Mengapa? Sebab produksi industri petrokimia seperti aromatic dan olefin sangat berperan dalam menunjang industri tekstil, plastik, karpet, benang untuk ban mobil, pestisida, dan obat-obatan.

Peranannya yang sangat strategis inilah yang juga telah berperan membuat harga produk petrokimia pernah berkisar US$400 sampai di atas US$1.200 per ton. Dari setiap tonnya, dapat menghasilkan keuntungan antara US$80-US$200 dari setiap 1 ton.

Prospek keuntungan inilah yang melatarbelakangi mengapa negara-negara Timur Tengah seperti Saudi Arabia, Iran, Qatar, dan Abu Dhabi termotivasi membangun industri petrokimia sampai tahun 2010 yang diperkirakan memproduksi olefin (ethylene) sebesar 15 juta ton per tahun.

Untuk keperluan itu, usaha patungan Saudi Arabia, Exxon Mobil, Shell, BP, dan Phillip akan menginvestasikan senilai US$10-15 miliar. Arab Saudi sendiri melalui Sabic memperoleh laba senilai US$1 miliar lebih dengan revenue US$ 7,6 miliar.

Demikian juga dengan Eropa Timur yang memprogramkan pembangunan industri petrokimia hulu dan turunannya sebesar 5 juta ton per tahun. China ternyata tidak mau ketinggalan, ikut mengembangkan industri petrokimia hulu ini. Informasi yang diperoleh, sampai tahun 2006, mereka merencanakan membangun industri petrokimia hulu berkapasitas 6,35 juta ton per tahun. Hal ini belum termasuk pembangunan industri petrokimia hulu hasil kerja sama antara Fujian Petrochemical, Exxon Mobil, dan Saudi Aramco berkapasitas 800.000 ton per tahun dengan nilai investasi sebesar US$ 3 miliar.

Indonesia yang sudah tertinggal dari negara-negara lain dalam hal pengembangan industri petrokimia hulu ini, sudah seharusnya mengejar ketertinggalannya. Salah satu upaya yang bisa dilakukan adalah memaksimalkan kapasitas aset yang telah dimiliki. Sekali lagi tanpa industri petrokimia hulu, kita bukanlah apa-apa

Thursday, February 23, 2006

US-owned gold mine halts production in Indonesia


Section: Regional News - U.S. gold mining giant Freeport McMoRan suspended operations in Indonesia's easternmost province, Papua, after illegal miners blocked the road leading to the site.

Hundreds of illegal miners set up barricades of wood and stone blocking the road leading to the world's largest gold and copper mine in the remote province of Papua.

The blockade follows clashes Tuesday after police and Freeport security guards tried to force around 100 illegal miners out of the Grasberg copper and gold mine, which is run by a local unit of Freeport.

The illegal miners, who were armed with bows and arrows, shot and wounded several security guards. Several miners also received injuries in the clash, but no one was seriously injured.

Freeport spokesman Siddharta Moersjid claims the illegal miners attacked the authorities. "Police were accompanying our security guards who approached a group of illegal miners and asked them to leave the area," he said. "A number of illegal miners attacked the security personnel injuring three of our security guards and one member of the Indonesian police. The police restored order and during the process two of the illegal miners were injured, not seriously."

Illegal miners earn their living from retrieving bits of gold from the waste rock discarded by the mine. It is a common practice across the Indonesian archipelago, where many people live in poverty.

Freeport has a history of troubled relations with the local people, many who eke out a meager living by illegal mining. The mine spokesman did not say why the company wanted to prevent people from mining the waste rock.

Siddharta says the decision to suspend operations was taken as a precautionary measure. It is the first time Freeport has stopped production since a landslide killed several workers in 2003.

"Following the incident the group of illegal miners blocked the road leading to the mine and the mill. So the mining and the milling operations have to be temporarily suspended as a precautionary measure," he said.

Earlier this month Freeport security guards and police conducted several raids to remove illegal miners from the site. Freeport operations in Papua have come under heavy scrutiny following reports it paid millions of dollars to the Indonesian military and police to guard the mine.

Thai Press Reports

Freeport Mine Shut For Second Day

JAKARTA, Feb 23, 2006 (Dow Jones Commodities News via Comtex) --
TOP STORIES Jakarta Protesters Attack Freeport Office Building
Students angry at U.S. gold mining giant Freeport-McMoRan Copper & Gold Inc. (FCX) attacked the building housing its offices in Jakarta on Thursday, as the company's mine in Papua province remained shut for a second day due to protests. Freeport: Premature To Quantify Indonesia Output Losses

JAKARTA (Dow Jones)--The massive Papua mine of U.S. firm Freeport-McMoRan Copper & Gold Inc. (FCX) remained shut by angry protesters for a second day Thursday, with a company spokesman saying potential production losses are currently difficult to calculate.

Dow Jones

Oil price surge helps Santos double annual profit

MELBOURNE, Feb 23 AAP - Santos Ltd has more than doubled its annual profit and the oil and gas producer says the outlook is good for another bumper year in 2006. The Adelaide-based company today posted a $762.1 million net profit for calendar 2005, an increase of 115 per cent.

Chief executive John Ellice-Flint said the massive jump in profit had been driven both by increased production and by rising oil and gas prices. "The profit is split about 50/50 due to volume and commodity price," he said.

Santos' average realised price for oil climbed 42 per cent to $73.83 ($US54.76) per barrel and gas rose 10 per cent to $3.62 per gigajoule, with Mr Ellice-Flint saying prices looked set to remain strong in 2006.

Production for the year rose 19 per cent to 56 million barrels of oil equivalent (mmboe) and Santos expects this to grow to between 60 and 61 mmboe in 2006 and between 62 and 63 mmboe in 2007.

The company has ramped up exploration and development activity in recent years and is no longer accused of relying too heavily on its mature assets in the Cooper basin in South Australia. Where eight years ago only 23 per cent of its production came from outside of the Cooper Basin, this figure has now risen to 60 per cent.

The exploration program will step up another notch in 2006 with 25 wildcat exploration wells to be drilled at a cost of about $225 million and 310 wells to be drilled in total. The work is paying off with Santos' reserves at the end of the year reaching 414 mmboe, up from 348 mmboe at the end of 2004.

The market has been anxious for more details on the Jeruk oil find in Indonesia and Mr Ellice-Flint said three to four appraisal wells would be drilled there this year. The company said additional information would be released in the middle of the year and its target was to start early production in 2007.

Mr Ellice-Flint also said the company was still in discussions about its potential involvement in the $4 billion Papua New Guinea gas pipeline project. Santos declared a final dividend of 20 cents per share, taking the full year dividend to 38 cents, up from 33 cents in 2004. Santos shares fell 30 cents to $11.80.


Iran, Indonesia review expansion of mutual relations


Text of report in English by Iranian news agency IRNA website

Kuala Lumpur, 23 February: Foreign Minister Manuchehr Mottaki conferred here Thursday [23 February] with his Indonesian counterpart, Hasan Wirayudha, on issues of mutual interests.

At the meeting, the two ministers discussed expansion of mutual cooperation, regional and international developments along with Iran's peaceful nuclear programmes.

The Iranian minister is scheduled to confer with Indonesian President Susilo Bambang Yudhoyono on expansion of mutual relations and international developments.

IRNA website, Tehran, in English 1205 gmt 23 Feb 06
BBC Monitoring

RP, Indonesia extend fishing accord

General Santos City--The country will continue to enjoy fishing privileges in Indonesian waters following the signing of a five-year extension of an agreement between the two countries yesterday.

The fishing agreement effectively extended the country's access to Indonesian fishing grounds until 2011.

Agriculture Secretary Domingo Panganiban and Indonesian Minister of Marine Affairs Freddy Numberi signed the new accord.

"The tuna industry means a lot to the Philippines and the document we signed means a lot to the Filipinos, from the fishing crew to the Philippine fishing operators, to the fish processors and traders and exporters," Panganiban said.
It took the Philippine negotiating team a year and two failed bilateral talks to extend the contract for another five years. The Philippines entered into a one-year interim contract with Indonesia prior to the signing of the new agreement .

The new contract replaced the one-year interim agreement set to expire on Nov. 11 this year.

The previous agreement signed in 2002 allowed Filipino fishing vessels to harvest tuna and tuna-like species within the Indonesian Exclusive Economic Zone (EEZ).

It gave licenses to 75 catcher vessels, 150 fish carriers, 20 long liners, 300 light boats and 10 single purse seiners, and allowed access to the Pacific and Indian Ocean areas of the Indonesian EEZ. It also provides offloading and resupply access to 10 Indonesian ports.

Marfenio Tan, president of the Socsargen Federation of Fishing and Allied Industries Inc., said additional provisions in the fishery pact will be discussed in 2007, which includes parameters for joint venture deals.

The new agreement covers new areas of cooperation in aquaculture; marine capture fisheries through joint venture; postharvest, fish processing development and marketing; coastal management and development; marine fisheries conservation; combating illegal, unreported and unregulated fishing practices; research activities; education and training and environmental protection.

Panganiban said the new fishing pact would help the local tuna industry compete against other tuna fishing fleets in the region.

"It will also help the industry comply with the emerging restrictive trade regulations that pose a threat to out tuna exports in major markets such as the European Union and the United States," Panganiban said.

Local fish processors export tuna to Europe, US, Japan and neighboring countries. Tuna accounts for about 12 percent of the country's total fish production, bringing $280 million in annual exports, mostly in the form of canned tuna, high-value sashimi tuna and tuna steaks.

Total annual tuna catch was estimated at 400,000 metric tons. The industry generates more than 100,000 jobs. The Philippines ranks second in tuna catches in the world, next to Taiwan and fifth in terms of canning with US in the lead, followed by Thailand, Spain and Italy.

Manila Standard

Indonesia leader, Vietnam premier vow to boost bilateral, regional ties

Text of report in English by Vietnamese news agency VNA website

Jakarta, 22 February: Vietnamese Prime Minister Phan Van Khai arrived in Jakarta on 22 February, beginning an official visit to Indonesia at the invitation of Indonesian President Susilo Bambang Yudhoyono.

PM Khai was welcomed at the airport by Foreign Minister Hasan Wirayudha and Minister of Culture and Tourism Jero Wacik.

After an official welcoming ceremony held at the Presidential Office in the afternoon by President Susilo Bambang Yudhoyono, PM Khai and President Yudhoyono met and the two sides later held talks.

President Yudhoyono highlighted the significance of the visit in promoting Indonesia-Vietnam strategic comprehensive partnership, saying the visit not only marked a new step of development in the two countries' traditional friendship and multifaceted cooperation, but also the 50th anniversary of the establishment of diplomatic ties (30 December 1955).

PM Khai said he believed that his first visit to Indonesia in the capacity of Vietnamese prime minister would markedly contribute to further expanding the two countries' ties.

The two sides discussed specific measures to broaden and strengthen the traditional friendship and comprehensive cooperation and exchanged views on international and regional issues of mutual concern.

They expressed pleasure at the fine development of the Vietnam-Indonesia relationship over the past five decades and emphasized the need to further enhance multifaceted, long-term and stable cooperative ties between the two countries in the principle of respecting independence, sovereignty and territorial integrity of each other.

The two leaders agreed on assigning the Ministries of Foreign Affairs to quickly design the 2006-2010 plan of action to lay a firm foundation for the two countries to effectively implement their Joint Declaration.

They reached a consensus in creating a more attractive and favourable environment for cooperation in trade and investment cooperation as well as in agro-forestry and fisheries, oil and gas, energy, healthcare, culture, tourism, education-training, security and defence, environmental protection. Bilateral cooperation was also agreed in the fight against terrorism, trans-national crimes, epidemics and natural disasters.

PM Khai and Indonesian president were unanimous in holding the fourth session of the Joint Committee for Economic and Trade Cooperation in Hanoi. They also applauded the signing of an agreement on tourism cooperation between the Vietnam Administration of Tourism and the Indonesian Ministry of Culture and Tourism.

The leaders spoke highly of the coordination between the two countries at international and regional forums and reaffirmed their commitments to promote the close partnership between the two countries in boosting peace, stability and economic development in the region and the world.

They also reiterated their commitments to support the establishment of the ASEAN community, with security-political cooperation, economic cooperation and cultural-social cooperation being the three major factors for its development.

The Indonesian president said he believed that the 2006 APEC Summit in Vietnam will help boost cooperation among APEC member economies, making Asia-Pacific a dynamic community for prosperity and sustainable development.
The two leaders highlighted the close cooperation between the two countries through their support for Indonesia to become a non-permanent member of the United Nations Security Council in the 2007-2008 term and for Vietnam in the 2008-2009 term.

VNA news agency website, Hanoi, in English 22 Feb 06
BBC Monitoring

Airbus has received orders this week for a total of 40 A320 aircraft from Indonesia's Adam Air and India's GoAir

AIRLINE INDUSTRY INFORMATION--European aircraft manufacturer Airbus has outperformed US-based Boeing Co at the Asian Aerospace show in Singapore.

The manufacturer reportedly announced at the show orders for new passenger aircraft from Indonesia and India as well as industrial cooperation plans with South Korea.

According to The Associated Press, Airbus revealed on Thursday (23 February) that it has received orders this week for a total of 40 A320 aircraft from Indonesia's Adam Air and India's GoAir. The order is valued at approximately USD2.8bn (EUR2.4bn) based on list prices. GoAir also took an option for the purchase of 10 additional A320 aircraft.

The manufacturer also finalised extended cooperation agreements with state-run Korea Aerospace Industries Ltd worth over USD1bn (EUR840m). These cover development of the new A350 and manufacturing of components for A321 aircraft.

In addition Airbus also entered into a deal on Monday (20 February) to sell 43 A320 and A319 jets to the airline Indian for USD2.5bn (EUR2.08bn) and Boeing announced that Indian carrier Spicejet had ordered 10 737 aircraft and was taking an option to order another 10, The Associated Press reported.

Financial Times Information Limited.

Trade and Investment News

• The presidents of Indonesia and East Timor agreed to put the past behind them
• The foreign minister criticizes Denmark for withdrawing its diplomats, saying their safety was
not at risk
• Two Australians sentenced to death for their part in a heroin-smuggling conspiracy
• GOI and Newmont agrees to out-of-court settlement
• Parliament promises to deal quickly with Aceh governance bill
• Infrastructure Policy Package Launched
• New investment reform package to be released
• The economy grew at 5.6% last year, faster than analyst’s predictions

Business briefs
• Economic growth in 2005 ahead of previous year’s improvement
• Caution on economy to continue, says central bank governor
• January investment figures top $1 billion
• Singapore-based US businesses upbeat on Indonesia
State concerns
• EU to help check illegal logging
• Manufactured exports put on 12.7%
• PPA to sell 800 properties
Private sector
• Car sales figures down, expecting second half boost
• Consumer spending keeps moving forward
• Former bank debtors to bring money back
• Bank stakes to be sold by government
Oil & gas
• Government sets deadline for Cepu deal
• Santos drills third well at Jeruk

Gusmao, Yudhoyono Look Forward
President Susilo Bambang Yudhoyono embraced his East Timorese counterpart on Friday (17/2/06), and said a report detailing atrocities committed by Indonesia during its occupation of the tiny nation would not affect ties.

East Timorese President Xanana Gusmao did not address the report, which was submitted to the United Nations last month, but said he was looking forward to "living in peace" with his neighbor.

Gusmao said both countries had "more to do" on reconciliation, but would satisfy the international community with a responsible and credible account of rights abuses. "We are committed to our principles ... as sovereign states," he added.

"Collective justice should prevail over individual justice,” East Timor's Prime Minister Mari Alkatiri said in an interview. “We can't now find among the people victim A, B or C," he said in the interview published in Portuguese newspaper Diario de Noticias."If the entire people suffered to gain independence, the compensation for this suffering was independence," he added.

Why Leave? Danes Asked
Denmark's decision to withdraw its diplomats and embassy staff from Jakarta after protests over Danish newspaper cartoons of the Prophet Mohammad was taken in haste, Indonesia's foreign minister said on February 12.

The Danish foreign ministry said diplomats and staff had been withdrawn because of security threats in the world's most populous Muslim nation. "We think this decision was quite hasty. We have given protection to the ambassador and his staffs. Moreover, the demonstrations in Indonesia have been relatively peaceful," said Foreign Minister Hassan Wirayuda.

"There is no good reason, but it is for them to decide," he told reporters on the sidelines of an Asian inter-religious forum. Wirayuda said Indonesia did not have any specific information about any threat. "(Denmark) said they received threats through the telephone but we have no way to confirm that. We have heard of such things before and usually they are only rhetoric," he said.

Denmark has been the target of protests in Islamic countries since cartoons of the Prophet, first published in the Danish newspaper Jyllands-Posten in September, were reprinted by other European newspapers in January. Indonesia has condemned the cartoons and called on the media to draw a lesson from the publications that have sparked Muslim protests worldwide, saying freedom of the press was not absolute.

On February 12, Vice President Jusuf Kalla said the cartoon furor was not a sign that there was a clash between Islam and the Western civilization or other religions. "This is press, media without tolerance versus (dignity of) the faith. This is because tolerance was not implemented," he told East Asian religious leaders from 10 faiths.

Two Australians Get Death Sentences
The Indonesian Government is likely to reject Australian pleas for leniency on behalf of two of the the nine heroin traffickers, with top officials calling for the death sentences to be carried out as soon as the appeals process finishes. A spokesman for Attorney General Abdul Rahman Saleh said on Friday (17/2/06) that prosecutors would continue to push for Andrew Chan, 22, and Myuran Sukumaran, 24, to go before the firing squad if their appeals fail.

Presidential pardons for the pair or to reduce the life sentences handed down to the rest of the nine were unlikely as none had ever been granted to drug offenders, Mashudi Ridwan said. The head of Indonesia's police force and its anti-drugs agency also supported the verdicts, calling for the executions to take place quickly to deter other traffickers, who were caught with the assistance of the Australian Federal Police. The remainder of the accused were sentenced to terms of life in prison.


GOI-Newmont Settle Community Development and Environment Agreement in Buyat Area

Newmont Mining Corp agreed to pay a foundation $30 million to fund community development and environmental monitoring programs around the gold mine in Buyat Area, North Sulawesi, as part of an agreement with the Government reached Thursday (16/2/06) to end a civil suit over pollution allegations. The deal was announced at a joint news conference.

“This is the best option for us to resolve the dispute for the welfare of the people there,'' Indonesia's Coordinating Minister for People's Welfare Aburizal Bakrie was quoted as saying by Bloomberg. Minister for Environment, North Sulawesi Governor and representatives of 3 districts surrounding the area were presence at the signing ceremony.

The Office of the State Minister for Environment filed the lawsuit last year and had been seeking $133.6 million in damages.Robert Gallagher, Newmont's vice president for Indonesian operations, said the deal "reaffirmed our long-term presence and investment in Indonesia and our commitment to the communities where we operate."

"This is a good sign to show that the government is moving in the right direction," said Standard Chartered economist Fauzi Ichsan.

Indonesia hopeful Aceh Law passed by deadline
The House of Representatives (DPR) is optimistic that legislation on governance for Aceh province will be passed before the March 31 date set out in the Helsinki peace accord, Deputy House Speaker Zaenal Maarif said Tuesday (14/2/06), the Associated Press reported.

The legislation would allow former rebels to form their own political party and give the province upto 70% of revenues from its natural resources, including gas and oil reserves, Maarif said. A parliamentary committee began debating the bill on Wednesday. "We all know that there is a deadline contained within the peace deal," said Maarif. He said members of a committee formed to deal with the bill understood the need for haste.The Free Aceh Movement (GAM) and the government have up to now fulfilled the terms of the deal, sealed last August. The agreement has stopped violence in the province, which lost more than 131,000 people to the December 26, 2004 earthquake and tsunami.

Infrastructure Project for Aceh
Indonesia and foreign donors announced plans Friday (17/2/06) to launch a $1 billion infrastructure project in the province. The project, to be jointly funded by the government and a multi-donor fund, will focus on road and bridge repair, prevention of future floods and the rehabilitation of ports in Aceh and Nias island.

Money also will be spent on a comprehensive land title program, waste management and other large-scale infrastructure needs, said Kuntoro Mangkusubroto, who heads the government's Aceh-Nias Reconstruction Agency (BRR).

The Multi-Donor Fund, set up to coordinate money that poured into the region after the December 26, 2004, tsunami and a subsequent earthquake in Nias, will contribute $340 million to the projects. The rest of the money will come from the government, Kuntoro said at a joint news conference in Jakarta.

Papua Shooting Probe Completed
Indonesian police have finished their investigation into eight suspects accused in the 2002 slayings of two American and one Indonesian teacher at the Freeport mine in Papua and handed over their charge sheets to prosecutors, a spokesman said Friday (17/2/06).

Prosecutors will now study the dossiers and decide whether they are strong enough to file to court, or need to be returned to police for more investigation, the Associated Press reported. The eight men were arrested last month over their alleged roles in the slayings close to the Freeport copper and gold mine.
One of the men, Anthonius Wamang, was indicted by a US grand jury over the attack. "We have finished the investigation," said spokesman Brig. Gen. Anton Bachrul Alam. "We have also questioned 22 witnesses, including some American citizens as well as getting information from the FBI."

He said Wamang was facing a charge of premeditated murder, which carries the death sentence. The other men were accused of lesser charges, he said.

Jambi Regent Guilty of Corruption
A court in Jambi on Tuesday (14/2/06) sentenced suspended Sarolangun regent Muhammad Madel to a year in prison for corruption. Prosecutors, who demanded a four-year sentence, claimed he had caused Rp2.8 billion
($300,000) in losses to the state.

Madel was also fined Rp100 million or an extra six months for his role in the construction of a pontoon dock in 2004. He was found to have endorsed changes to blueprints that led to the dock’s collapse six months after it was completed, The Jakarta Post reported.

Infrastructure Policy Package Launched

Coordinating Minister for Economics Affairs Boediono and six other ministers launched a new infrastructure policy package on Friday. The policies mainly consist of improving related regulations, simplifying licensing procedures and providing several facilities to better implement infrastructure projects, as well as support their financing needs.

The policies will concern 10 main infrastructure sectors: roads, railways, power, oil and gas, telecommunications, housing, water and sanitation, air, water and land transportation, he said, according to The Jakarta Post.

Boediono also welcomed the final calculation of last year’s growth, which the Bureau of Statistics (BPS) put at 5.6%. It was a positive result considering the problems that beset the economy last year and was higher than growth in most of Indonesia’s neighboring economies, he said.

Growth in the fourth quarter had come in at only 4.9%, the slowest for six quarters, BPS said. The slowdown in annual growth was “milder than expected,” Morgan Stanley Economists said. Consumption weakness was still expected to slow the economy, but should be contained by funds for the poor.
Citigroup economist Anton Gunawan said the full-year figure suggested the impact of last year's double fuel price hikes was not as severe as many analysts feared.

The Fitch ratings agency downgraded Indonesia’s sovereign credit rating outlook to stable from positive, but analysts said the move appeared to be based on outdated data, and noted that it followed by a week a Standard & Poor’s outlook upgrade to positive.

A group of Singapore-based US business executives said they were confident about Indonesia’s outlook, citing continuing reform measures and the expanding market. "Indonesia is a very important country in the region, and it is an area with a lot of opportunities and interest for our members," said Amy M. Adams, chairman of the American Chamber of Commerce in Singapore.

Indonesia can achieve sustained economic recovery and faster growth with the completion of structural reforms, senior International Monetary Fund (IMF) official Daniel Citrin said on Thursday (17/2/06). The comment came as Indonesia prepares to launch a new set of reforms which aim to create a
better environment for investment.

"Indonesia has a pretty positive medium-term outlook with growth possibly accelerating to the 6- 7% range," said Citrin, deputy director of the IMF's Asia-Pacific department. "Continuing to preserve macroeconomic stability and pushing ahead much more forcefully with structural reforms will be the keys to producing growth and reducing unemployment," he told the US-Indonesia Society in Washington, according to Reuters. He named the tax system, labor regulations, the judicial system and governance in general as factors that still needed work.

Economy expanded 5.6% in 2005

Indonesia’s economy expanded 5.6% in 2005 from the previous year, outpacing growth of 5.4% in 2004. However, the economy contracted in the fourth quarter of 2005 from the previous three months, as high inflation and heavy interest rates took their toll.

The economy contracted 2.18% in the October to December period from the previous quarter, data from the Central Bureau of Statistics (BPS) showed on Wednesday (15/2/06). That compares with growth of 2.87% in the third quarter from the second quarter.

Year on year, the economy expanded 4.9%, decelerating from 5.63% in the July to September period due to a variety of internal and external factors, BPS chief Choiril Maksum said. The bureau said per capita income last year was $1,267, up from $1,120 in 2004.

Growth last year was partly driven by the transport and telecommunications sectors, which expanded on foreign investment, Reuters reported. The transport and communications sector grew 10.78% in the fourth quarter from a year earlier compared with 12.87% growth in the previous quarter.

Based on industrial sectors, manufacturing grew 2.91% in the fourth quarter from a year earlier versus 5.59% growth in the previous quarter. Private consumption grew 4.18% in the fourth quarter, slower than 4.43% in the third quarter. Citibank economist Anton Gunawan said that to some extent, relatively strong consumption growth in the fourth quarter may have been spurred by the distribution of cash compensation to help ease the burden of the fuel price hike on the poorest families. The government paid Rp300,000 to each of 15.648 million households registered as poor in the last quarter of 2005.
Private consumption was the economy's main driver, making up 65.41% of GDP in 2005 against 67.78% the year before. It expanded 3.95% for 2005, growing 4.18% year-on-year in the fourth quarter and rising 1.1% quarter-on-quarter.
Coordinating Minister for Economy Boediono meanwhile said that the overnment still aims to achieve economic growth of 6% to 7% in the medium term.

"Going forward, we will try to achieve higher growth by pushing up investment," he was quoted as saying by XFN-Asia. "I would say that compared to our neighbors, we did quite well given the difficulties we faced last year," he said, referring to the oil price spike and the severe impact brought about by the
December 2004 tsunami. He said that to create jobs and reduce poverty, the economy has to grow by at least 6% to 7% over the medium term. "We are striving towards that direction," he said.

BI to Keep Tight Monetary Policy
Bank Indonesia (BI) Governor Burhanuddin Abdullah said the central bank would not as yet relax its monetary policy to maintain monetary stability over the next several months. During that period, the benchmark interest rate will either stay at the present level of 12.75% or rise to 13%, Abdullah said on Wednesday (15/2/06), according to Antara.

There have been calls for a cut in the interest rate to boost the real sector as improvements have been shown in the macroeconomic condition marked with the rupiah's appreciation and an increase in the Jakarta composite index.
During Wednesday’s auction, the interest rate on the BI promissory note was 12.74% or one basis point below the benchmark interest rate set by the central bank.

BI absorbed Rp32.23 trillion ($3.5 billion) in public funds from the sale of the BI certificates in the auction. Abdullah has said the monetary policy will remain tight in the first quarter of the year and will begin to relax in the following quarter. He said the interest rate gap between the US dollar and the rupiah kept the inflow of funds steady. The decrease in oil imports, thanks to a rise in domestic oil prices, also helped stabilize the currency.

BI to Replace 3-Month SBIs
The central bank, Bank Indonesia (BI), is planning to replace its three-month BI Certificates (SBI) with treasury bonds to create a clear interest rate benchmark, BI director for public relations and strategic planning Budi Mulya said.
"Maybe in March or April, we will stop the auction of three-month SBIs. So there would only be the one-month SBI. This is to make the SBI rate better reflect the BI rate," he said, referring to the central bank's key policy rate.

"The reason we are doing this is to remove market confusion about which rate should be the reference of the BI rate. We have discussed the matter with the government," he was quoted as saying by XFN-Asia.

Govt. to Unveil Investment Package

The government is set to unveil this week a long-awaited policy package aimed at immediately boosting investment. Coordinating Minister for Economy Boediono is finalizing the policy measures, Trade Minister Mari Pangestu told Dow Jones Newswires on Thursday (16/2/06).

"(The package) will contain a lot of immediate short-term deregulation and streamlining (of investment stimulus) measures," Pangestu said. There will also be "clear indications of changes in the law and regulations which people are
hoping for in investment, tax, customs, labor and decentralization," she said.
Pangestu said the departments of trade and transportation have also drawn up a list of urgent, short-term measures to assist the export production sector.

Indonesia’s stimulus package reflects government efforts to lure back investor dollars. "We've got to see increased investment coming back in, including expansion of existing (production) capacity," Pangestu said. "For that to happen, a number of things have to begin to be felt this year with regard to improving the invest climate and infrastructure."

She projected that exports will rise at least 13% this year from last year. That would mark an easing from 19.5% year-on-year growth to $85.57 billion in 2005.

$1b in New Investment Approved
The prospect of a prolonged economic slowdown has not deterred nine local and overseas firms from proposing new investment plans worth more than $1 billion to the government, chairman of the Investment Coordinating Board (BKPM), Muhammad Lutfi, said on Tuesday (14/2/06).

"Between January and February alone, we approved several major investment projects worth hundreds of millions of dollars each. This shows that the business community still has confidence in us," he was quoted as saying by The Jakarta Post.

According to Global Insight Daily, foreign direct investment (FDI) in Indonesia reached $1.4 billion (Rp12.8 trillion) last month, while domestic investment totaled Rp2.6 trillion. Lutfi said the agency predicts investment -- both foreign and domestic – to grow by 21% this year to Rp139 trillion ($14.94 billion) from Rp115 trillion last year, creating 470,000 new jobs, compared to the 280,000 jobs created by investors last year.

The BKPM estimate excluded investments in the oil, gas and mining industries, banks and nonbank financial institutions, and the capital markets as these are regulated by other agencies. Realized FDI from January to December last year nearly doubled to $8.91 billion (909 projects) from $4.6 billion (544 projects) during the same period in 2004.

US Businesses Upbeat About Reforms
A group of Singapore-based US businessmen has expressed confidence about the future outlook for Indonesia's economy due to its expanding market and the government's continuing economic reform measures.

The businessmen, representing some 20 US companies based in Singapore, met with local counterparts and economics ministers in Indonesia during their visit to get firsthand information about business opportunities and the direction of economic reform in Indonesia, The Jakarta Post reported on Wednesday (15/2/06).

"Indonesia is a very important country in the region, and it is an area with a lot of opportunities and interest for our members," said Amy M Adams, chairman of the American Chamber of Commerce in Singapore. Such qualities, however, would not attract investment unless the government addresses various
concerns raised by business, especially those concerning taxation, labor and customs -- three problematic areas that have made investing in Indonesia less attractive.

Adams noted that the government leaders they met during their visit appeared to be serious about reforming the taxation, labor and customs sectors. On top of these reforms, the government also needs to take care of security issues, which often frighten off foreign businesses and tourists, she said.

EU Proposes Plywood Inspection

The European Union (EU) is proposing a collaborative scheme with the Indonesian government to allow its members to inspect wood-based imports from Indonesia, such as plywood and wood panels, as part of EU's efforts to help the country curb illegal logging. "We hope that we can arrive at an agreement on the matter with the Indonesian government by the end of this year or early next year," the EU's natural resources program manager for
Indonesia, Vernon Copeland, told The Jakarta Post on the sidelines of a workshop on illegal logging organized by the Forestry Department on Wednesday (15/2/06).

Forestry Minister MS Kaban, in a speech during the workshop, urged the EU to bar its members from importing illegally felled timber. "We're asking the European countries not to serve as markets for the illegal loggers," he said.
The scheme, Copeland said, is part of an EU action plan on forestry law enforcement and trade, designed to prevent the entry of panels or plywood sourced from illegal logging.

Under the scheme, Indonesia will be required to issue documents providing evidence of the legality of the exported panels. The customs and excise services of the individual EU members would then inspect the documents and confiscate panels found to be illegal. However, he said the scheme would be applied on a voluntary basis, and that no sanction would be imposed against member states that allow the entry of illegal logs.

The EU has been supporting the government's effort to eradicate illegal logging for the last three years. The European Commission has disbursed about 1 million euros in grant to fund the operation of the Illegal Logging Response Centers. Indonesia suffers annual losses of about Rp30 trillion due to illegal logging, while deforestation has affected some 2.8 million hectares.

Export of Manufactured Goods Up
Indonesia's export of manufactured goods rose 12.7% in the first 11 months of 2005 from $50 billion in the same period the year before. The highest increase of 28.5% was recorded in the export of steel and automotive products,
valued at $2.36 billion, up from $1.87 billion in the same period the previous year, Industry Minister Fahmi Idris was quoted as saying by Antara.
A 5.24% decline was recorded in the export of timber and wood products to $2.82 billion.

The largest contributors to the export value were electronic products, information technology and electric machines with exports valued at $11.08 billion, followed by textiles and garments valued at $7.66 billion.

Qantas, Lufthansa Eye Garuda

Australia’s Qantas and Germany's Lufthansa are reportedly eyeing stakes in debt-laden Indonesian carrier, Garuda Indonesia. The Sydney Morning Herald reported on Wednesday (15/2/06) that Qantas is exploring a potential partnership with Garuda in an attempt to gain a toehold in one of Asia's fastest growing aviation markets.

Qantas chief executive Geoff Dixon and chief financial officer Peter Gregg held talks with stateowned Garuda earlier this month. Another attraction for Qantas in building its presence in Indonesia could be the country's potential as a low-cost maintenance base, the Herald said.

It could provide a maintenance hub for parts of the Qantas and Jetstar fleet of short-haul 737s and A320s. Meanwhile, State Minister for State Enterprises Sugiharto said Garuda officials have recently returned from Germany where they met with their counterparts from Lufthansa to explain the condition of the airline, Antara reported on Thursday (16/2/06).

Sugiharto described the talks as encouraging, but noted that Lufthansa is not the only investor eyeing Garuda, since investors from the Middle East are also interested in acquiring Garuda.

PPA to Sell Property Units
The Finance Department’s asset management company, PT PPA, plans to sell 800 properties this year after placing a value on the assets, The Jakarta Post reported on Monday (13/2/06).

PPA vice president Raden Pardede said recently that the evaluation process should be completed within the next one to two months so that the assets could be sold. Pardede said PPA spends about Rp150 billion ($16.22 million) each year for the maintenance of various fixed assets under its control.

PPA manages some 3,113 properties, mostly in the form of land assets. Other assets include shares in banks and companies. PPA received various forms of assets from the now defunct Indonesian Bank Restructuring Agency (IBRA), which took over assets of troubled banks and indebted bank owners in the wake of the late 1990s regional financial crisis. The PPA is tasked to sell them to raise cash to help finance the state budget deficit.

Auto Sales Drop, Hopes for Second Half
Indonesia's auto industry is undergoing a slow start to the year after sales slumped last month, with higher fuel costs seen triggering production cuts, and a drop in annual sales of up to 16%, Reuters reported on Wednesday (15/2/06).

Auto makers are trimming working hours and output following a slump in sales since the government more than doubled domestic fuel prices in October to ease pressure on the budget. Domestic vehicle sales were a record 533,910 units last year, as consumers snapped up cars, pick-ups and motorbikes with cheap loans. But sales have tapered off since the fuel price hike and slumped 41.5% in January from a year earlier, the sharpest fall in four years.

Industry experts say 2006 sales could drop to as low as 450,000 units as the fuel hike bites and interest rates have gone up. Chairman of Indonesia's Automotive Industry Association (Gaikindo), Bambang Trisulo, said he
does not believe trimming output would result in massive layoffs. Some executives expect sales to recover in the second half, when inflation is forecast to slow and interest rates ease.

Consumer Borrowing Still Strong

High inflation and interest rates have failed to dampen consumer demand, with the latest central bank figures showing that consumer borrowing grew at an even faster pace last year than the year before, The Jakarta Post reported on Wednesday (15/2/06).

Consumer spending, which has been the backbone of the economy since the 1997 economic crisis, grew 36.7% in 2005, compared to 34.7% in 2004 when the country's macroeconomic picture was relatively more benign. According to Bank Indonesia (BI) figures, borrowing for investment and working capital purposes, mostly by large corporations, declined, contributing to lower overall lending growth of 24.6% last year compared to the growth of 26.4% booked in 2004. The figures showed that as of December 2005, the banking sector had extended loans amounting to Rp689.7 trillion (some $69.1 billion).

Debtors Expected to Come Home, Pay Up
Dozens of Bank Indonesia Liquidity Support (BLBI) program debtors who fled the country to avoid prosecution are ready to come home to return funds owed to the state, an official has said.

"In the near future, dozens more BLBI debtors will return home with this good intention," Cabinet Secretary Sudi Silalahi told the House of Representatives’ legal affairs commission during a meeting on Monday (13/2/06), The Jakarta Post reported.

The government has said it is considering reverting to its release and discharge policy, which allowed the dropping of charges against bad debtors who return their funds. Silalahi said the police had worked hard in cooperation with Interpol to trace the debtors, most of whom fled to countries with no extradition treaties with Indonesia.

Yudhoyono welcomed the debtors' willingness to return, but insisted the law must be upheld and that they should not be prey to unscrupulous officials.
About Rp144.5 trillion ($15.6 billion), which had been disbursed by the Suharto government to a number of private banks to keep them solvent during the 1997-1998 economic crisis, was embezzled by bankers.

Govt. to Sell Remaining Bank Shares
The government is planning to sell its remaining stakes in Bank Internasional Indonesia (BII) and Bank Permata, respectively the country's 6th and 7th largest lenders, this year if the market is good.

Vice president of state-owned asset management company PT PPA, Raden Pardede, said the asset sales are part of his company’s work plan this year, Antara reported on Monday (13/2/06). The government still has a 5.24% stake in BII and a 20.8% stake in Bank Permata, respectively controlled by a consortium of South Korea's Kookmin Bank and Singapore's Temasek Holding
Ltd and a consortium of Standard Chartered Bank and Astra International.

The stake in BII will likely be divested through market placement and the stake in Bank Permata through market placement or strategic sales, a PPA official has said.

Exxon, Pertamina Told to Fix Cepu
ExxonMobil Corp and Indonesia's state oil company, PT Pertamina, will be summoned to explain their failure to file a development plan for the country's biggest untapped oil field as the government said it will push for a settlement within weeks, Bloomberg reported on Wednesday (15/2/06).

The Upstream Oil and Gas Regulatory Body (BP Migas) was slated to meet with Exxon and Pertamina late last week to seek the submission of a plan for the Cepu oil field, BP Migas chairman Kardaya Warnika said. The companies had failed to meet a December 31 deadline.

"If there's no working proposal, there will be no work done nor production on Cepu," Warnika said. "They have to start doing some work on the field this year. That's what we want." Meanwhile Vice President Jusuf Kalla said the government was appointing two ministers to oversee the talks.

State Enterprises Minister Sugiharto and Minister for Energy and Mineral Resources Purnomo Yusgiantoro will mediate the talks, Kalla said Saturday during a visit to the field in Central Java. The government wanted some resolution "in a few weeks time," he said. "Before I came here, the president instructed me that the project should be started next week, this month," Kalla said. "We don't want this to be prolonged. The sooner the issue is resolved, the
better for the interests of the country."

The dispute between Exxon and Pertamina over which company will operate the Cepu field has stalled its development for more than four years. Sugiharto said on Monday (13/2/06) the government is drafting a joint operator agreement between the two companies on the development of Cepu, but it could take time to formulate details, reported Reuters.

Meanwhile Maman Budiman, vice president of public affairs at ExxonMobil Oil Indonesia Inc, said ExxonMobil has submitted bids for two new offshore oil and gas blocks, among several blocks that the government had offered to investors in December.

“We have submitted a bid for two offshore blocks, Pasangkayu and Surumana, in Makassar Straits," he was quoted as saying by Reuters. "We believe there is still potential to find hydrocarbon in those areas.”

Santos Drills 3rd Oil Well at Jeruk
Australian oil and gas producer Santos Ltd is drilling a third oil well at the Jeruk field in East Java to determine oil reserves but any production will not come on stream this year, a company spokesman said on Tuesday (14/2/06), according to Reuters.

"We are drilling the third well at Jeruk 3 to determine oil reserves. Output from Jeruk is still a long way to go because there is much work to do," Santos spokesman Arie Nauvel said. "It is impossible Jeruk will come on stream this year," he said, without giving a target start date.

Jeruk, majority-owned by Santos, will have an estimated production rate of 50,000 barrels per day (bpd), although officials have said it could ultimately pump two or three times that much. Nauvel said Santos expects to produce between 10,000 and 20,000 bpd of oil from the nearby Oyong field at the end of March.


Tuesday, February 14, 2006

Garuda; Change or Die

By Christovita Wiloto
CEO of Wiloto Corp. Asia Pacific
Bisnis Indonesia February 12, 2006

The changes in the "logic of business" that has been happening in the airlines industry turned out not only affected the small airlines. Big airline such as Garuda Indonesia is burdened by the load of debts in the tune of hundreds millions of Dollars. It has taken a lot of efforts and time to restructure the debts, but to no avail so far.

From the total debt of Garuda of 800 million dollar AS, 510 million of it is a debt to the European Credit Agency (ECA), 130 million dollar in the form of promissory note, and the rest of 160 million dollar to Bank Mandiri and PT Angkasa Pura I dan II. Garuda was also in default for payment of 55 million dollar to the holder of promissory note that fell due at the end of December 2005.

Apart from being burdened by the load of debt, the unfinished negotiation with the creditors was also contributed with how to find the best way to settle these debts. Generally, the creditors requested the management of Garuds to update the business plan. The business plan must contain the effect of the Bali Bombing relative to the performance of the company. They also seek guarantee from the Government of Indonesia towards the payment of the debts, injection of fresh fund and guarantee towards the Garuda business continuation.

The government has assisted Garuda by giving bridging fund totaling 56 million dollar, which will be used for working capital.

Meanwhile, in its guidance, the State Ministry of State Enterprise determines that Garuda must seek strategic alliance with other global airlines. This must be done in line with the transformation of its business to anticipate the growing competition in the airlines business.

The point is, whatever restructuring plan submitted to the creditors, the strategic alliance option is the option that must be dealt with by Garuda. Not surprisingly, if currently Garuda is actively courting some of the foreign airlines, especially from European countries.

But, the idea of forging strategic alliance with foreign airlines created controversy in the public, not only among the member of the parliament but also among the practitioners in the airlines industry. Even Vice President Jusuf Kalla added his surprising comment.

End of last year, the Vice President commented that the government no longer viewed Garuda as the flag carrier. His reasoning, is that current situation is different from the past, therefore it is possible that Garuda be sold of to the investors – both domestic or foreign.

''At present, there is almost no countries in the world that have flag carrier,'' said Vice President, after performing the Friday pray in his office. He added, that there has been growing trend for the sale of airlines, such as Qantas, KLM, atau Malaysia Airlines System (MAS).

Strategic Value of Garuda

The controversy should have been ended here. I think, all of us the fellow Indonesian citizen hope that Garuda can still spread its wings and fly away. Not only becoming the “bridges” from Indonesia to the rest of the world (and vice versa), but also becoming the ambassador for Indonesia in the international stage.

We must appreciate that our country has posted one ambassador for every country in this world. But, with their busy schedule in the diplomatic and elite circles, I am pretty sure that they will not have much time to socialize with the local people.

Service companies like Garuda can play greater role in entering the public domain. With its role as the bridges for people who are traveling to and from Indonesia, the existence of Garuda I think is more “eye catching” and familiar. People from some European countries, for instance, maybe are more familiar with the address of Garuda offices than the address and name of the Indonesian ambassador currently posted there.

In this situation, and with all due respect to what have been done by the Cultural Attaches in the respective embassies, in my opinion Garuda can play more effective and efficient role in promoting the tourism in Indonesia and even the country itself.

Now just imagine if Garuda no longer services the big cities in the world. What will happen is, maybe, the popularity of our country is decreasing. Meaning, whatever it takes, Garuda must still flying and represent the glory of Indonesia to the eyes of international world.

In order to achieve that, Garuda must totally change it business paradigm, from “only” the state owned company to become world-class company. This must be done to enable it to “compete” with other world-class airlines such as Singapore Airlines, Qantas, MAS or Thai Airways. Not only competing with the growing domestic airlines such as Lion Air, Adam Air, Awair and so forth.

The problem is, changing its total paradigm is not an easy job to do. It needs “Passion” and “Iron fists” to do it. It is possible that this will hurt some people along the way. Both internal and affiliated party of Garuda may be affected. I am sure that Garuda will face a lot of resistances, especially from the internal party.

The management and crews of Garuda can no longer instill the old paradigm that they are the “golden boy” and somewhat “different” from the others. The old paradigm must be replaced with the new one that enforces the competition, to serve more, to satisfy more. Garuda must understand that in order to compete in the new "logic of business" in the airlines industry, they have to change. In order also to become the “healthy” Garuda, nimble and can fly anywhere as well as ready to compete with other airlines in the world.

Therefore, Garuda has only two choices. Change totally its paradigm or die away.

Bisnis Indonesia
February 12, 2006

Indonesian analysts discuss issues facing new commander-in-chief


Excerpt from report by Radio Australia on 14 February

[Presenter Linda LoPresti] Indonesia's new military commander has begun his first week in the job with a warning from the president to keep the armed forces out of politics and a brief to push ahead with an agenda of modernization and internal reform. Tom Fayle reports on the task ahead for the former graduate of the Joint Services Staff College in Canberra.

[Correspondent] Air Marshal Djoko Suyanto is in his mid-fifties, hails from East Java, has some training in both Australia and the United States and is, by all accounts, an avid music lover. He is also the first air force chief to be elevated to the post of overall commander of the Indonesian military in many years and is a military academy classmate of now President Susilo Bambang Yudhoyono, graduating in the same year.

Agus Widjojo knows the world of the Indonesian military and politics well. He is both a retired lieutenant-general and a former deputy speaker of People's Consultative Assembly. He argues that while Air Marshal Djoko's appointment is symbolic of the president's commitment to military reform, it's also a question of rotating the post through the three services and giving the junior service a chance to show its mettle.

[Agus Widjojo] It is to be seen as strengthening the joint doctrine within the TNI, which stipulates that any military operations would be carried out jointly amongst the three services, and also positioning that the three services [are] at equal level, and to transform the definition of national defence from the traditional way of the past where we focused or oriented the defence inwardly because we believed that any threats to the republic would come from within. Now it is to be transferred into the traditional definition of national defence and which is to be directed and focused outwardly, meaning external defence. Which means also distancing the role of the military from social politics or anything to do with the internal or domestic condition of the country.

[Correspondent] Despite this, there is speculation among military analysts that Air Marshal Djoko is really something of a seat warmer for another friend and classmate of the president, but this time an army man - Gen Djoko Santoso. Jakarta-based military analyst Sukardi Rinakit dismisses this, but says the air marshal can expect a rough ride from the army as the services continue to jostle for influence and resources. [passage omitted]

Dr Sukardi Rinakit says the key challenge for Air Marshal Djoko will be balancing the military budget.

[Sukardi] The first challenge of the new commander-in-chief, first it's relating to how the military can finance and can fulfil its operation costs. Because the military doesn't have enough money for operation costs [there is] no choice, the new commander-in-chief must maintain its military business [as heard] as far as possible.

[Correspondent] He also argues that among the many human rights issues facing the new military commander, there is at least one area where improvement can be expected - Papua [Irian Jaya].

[Sukardi] I think the air force will little bit control the army activities there. [passage omitted]

[Correspondent] Some have also argued that given his links with the United States and Australia, Air Marshal Djoko Suyanto will also be a more acceptable face internationally at a time when the TNI is rebuilding its post-East Timor links with the military of both those countries. But that's not a view shared by Lt-Gen Agus Widjojo.

[Agus Widjojo] I think there are too many speculations being thrown on the air which is irrelevant to the appointment of Air Marshal Djoko as commanding general of the TNI. I think it's as simple as that now is the chance to proceed with the military reform and give an opportunity to the air force to be represented by their best officer to be assigned as commanding general of the TNI.

[Correspondent] So you won't be surprised if he serves out his full term at the top?

[Agus Widjojo] No, I will not be surprised.

Radio Australia, Melbourne, in English 1005 gmt 14 Feb 06
BBC Monitoring

Indonesia, Japan starts "substantial" FTA negotiations


Text of report in English by Japanese news agency Kyodo

Jakarta, 14 February: Indonesia and Japan have entered substantial negotiations on a bilateral free trade agreement in their latest round of talks in Jakarta, raising hopes that a basic agreement can be reached later this year, Indonesian and Japanese government officials said Tuesday [14 February].

"Now, we have a common understanding that both sides will do their best to reach a basic agreement in the summer, (and) the summer means, to my understanding, June or July," a Japanese official said at the end of the five-day Japan-Indonesia Economic Partnership Agreement talks.

Indonesian Ambassador to the United States Soemadi Brotodiningrat, who led the Indonesian delegation in the third round of negotiations, told Kyodo News that Japan and Indonesia exchanged lists of requests and tariff reduction offers for various items.

"We made major progress here, and as in any other negotiations, the more we step forward, the more we can see the problems we are facing," Brotodiningrat, a former Indonesian ambassador to Japan, said without elaborating.

Japanese officials said Indonesia sought improved access for its labour force to Japan, particularly helpers for elderly people, seamen, and factory workers.

The Japanese delegation, headed by Deputy Japanese Foreign Minister Mitoji Yabunaka, also reiterated its request that Jakarta improve its investment climate to lure more Japanese businesses.

Negotiators agreed to hold the next round of negotiations in the third week of April, according the Indonesian and Japanese officials.

"The meeting will be very important...If we won't see major progress then, it will be difficult to reach a basic agreement in the summer," the Japanese official said.

The two countries, which launched the EPA talks in July, had agreed to hold such talks every two months. Both Japanese and Indonesian officials have indicated their goal of completing the EPA negotiations in less than two years.

Kyodo News Service, Tokyo, in English 1145 gmt 14 Feb 06
BBC Monitoring

Indonesia: Broadcasting conflict leaves investors in limbo


Text of report in English by Indonesian newspaper The Jakarta Post website on 14 February

An ongoing dispute between the Information and Communications Ministry and the Indonesian Broadcasting Commission (KPI) about which institution has the right to issue broadcasting licences has left the industry in limbo.

The conflict began during President Megawati Soekarnoputri's regime when the 2003 Broadcasting Law was passed, establishing the KPI and giving it the right to issue television and radio licences.

President Susilo Bambang Yudhoyono's government later issued four regulations that gave the ministry the right to issue broadcasting licences. The KPI, with support from some industry players, is still contesting the regulations, which did not come into force until 5 February this year.

North Sumatra commission official Arya said the dispute meant his office was unable to process a backlog of applications for broadcasting licences and set new frequencies.

"It is us who live in the regions who are suffering the most from the new laws," he said. Four government regulations transfer the power to allocate electronic media frequencies and issue broadcasting licences from the KPI to the ministry.

The commission says it will continue issuing broadcasting permits, as mandated by the law establishing it.

"The KPI will continue to hear complaints about broadcasting content and proceed with issuing broadcasting permits," deputy chairman Sinansari Ecip said Monday [13 February]. The decision was made in a meeting of commission executives on Sunday, he said.

Sinansari said the KPI would request the Supreme Court review the four regulations.

Information and Communications Minister Sofyan Djalil said the KPI was welcome to file a judicial review, however, he stressed the government would continue enforcing the regulations.

"Let the Supreme Court decide," he said. The regulations provided legal certainty in the broadcasting sector, Sofyan said.

The commission and broadcasters have raised concerns the regulations would threaten the media's freedom of expression because they granted excessive powers to the Information and Communications Ministry.

Commission member and University of Indonesia communications lecturer Sasa Djuarsa Sendjaja criticized the ministry's response, saying the legislation was deliberately designed with big media bosses in mind.

"What do they mean by legal certainty - is this certainty for the capital owners? What about legal certainty for the public interest?" Sasa said.

Sofyan countered by saying it would be impossible for the broadcasting industry to run without capital.

In an earlier ruling on the matter, the Constitutional Court said the 2003 Broadcasting Law was not against the Constitution.

It said the powers to issue technical regulations on broadcasting should be granted to the KPI.

The Jakarta Post website, Jakarta, in English 14 Feb 06
BBC Monitoring

Inco reports results for fourth quarter and full year 2005

Canada Newswire English

TORONTO, Feb. 14 /CNW/ - Inco Limited today reported adjusted net earnings(1) of $169 million, or 89 cents per share ($0.76 per share on a diluted basis(2)), for the fourth quarter of 2005, compared with adjusted net earnings(1) of $253 million, or $1.35 per share ($1.21 per share on a diluted basis(2)), for the fourth quarter of 2004. The principal adjustments made in arriving at adjusted net earnings(1) for the fourth quarter of 2005 were (1) the exclusion of a gain of $88 million on the sale of a non-core investment; (2) the exclusion of estimated remediation costs of $13 million involving a property we retained from a disposed business unrelated to our current operations and (3) the exclusion of unfavourable non-cash currency translation adjustments totalling $11 million. All of the adjustments made in arriving at adjusted net earnings(1) for the fourth quarters and full years of 2005 and 2004 are set forth in the table under "Reconciliation Between Adjusted Net Earnings and Net Earnings in Accordance with Canadian GAAP" below.

Our net earnings for the fourth quarter of 2005 in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") were $235 million, or $1.23 per share ($1.06 per share on a diluted basis(2)), compared with net earnings of $226 million, or $1.20 per share ($1.08 per share on a diluted basis(2)), for the fourth quarter of 2004.

Our adjusted net earnings(1) for the full year 2005 were $811 million, or $4.29 per share ($3.64 per share on a diluted basis(2)), compared with $855 million, or $4.56 per share ($4.08 per share on a diluted basis(2)), for the full year of 2004.

Our net earnings for the full year 2005 in accordance with Canadian GAAP were $836 million, or $4.41 per share ($3.75 per share on a diluted basis(2)), compared with net earnings of $619 million, or $3.30 per share ($2.95 per share on a diluted basis(2)), for the full year of 2004.

Our adjusted net earnings(1) for the fourth quarter of 2005, as reflected in the table under "Reconciliation Between Adjusted Net Earnings and Net Earnings in Accordance with Canadian GAAP" below, were lower than adjusted net earnings(1) for the corresponding period of 2004 due to a lower realized selling price for nickel, lower Inco-source nickel deliveries and higher production costs partially offset by higher realized selling prices for copper and certain platinum-group metals ("PGMs") and higher deliveries of PGMs.

Our adjusted net earnings(1) for the full year 2005, as reflected in the table under "Reconciliation Between Adjusted Net Earnings and Net Earnings in Accordance with Canadian GAAP" below, were lower than adjusted net earnings for the corresponding period of 2004 due primarily to lower deliveries of Inco-source nickel, copper and PGMs as well as increased production costs partially offset by higher realized prices for nickel, copper and certain PGMs. Net earnings in accordance with Canadian GAAP for the full year 2005, as reflected in the table referred to above, were higher than for the full year 2004 due primarily to a gain on the sale of a non-core investment referred to above and the previously reported Goro non-cash asset impairment charge recorded in 2004 as well as higher realized selling prices for nickel, copper and certain PGMs, partially offset by nickel unit cash cost of sales before by-product credits and lower deliveries of Inco-source nickel, copper and PGMs.

All of the adjustments made in arriving at adjusted net earnings for the fourth quarters and full years of 2005 and 2004 are set forth under "Reconciliation Between Adjusted Net Earnings and Net Earnings in Accordance with Canadian GAAP" below. Our net earnings for the fourth quarter and full year of 2005 in accordance with Canadian GAAP also reflect the inclusion of the adjustments referred to in the table under "Reconciliation Between Adjusted Net Earnings and Net Earnings in Accordance with Canadian GAAP" below.

(1) The adjusted net earnings reported in this release have not been
calculated in accordance with Canadian GAAP, the accounting
principles under which our consolidated financial statements are
prepared, and there is no standard definition in such principles for
such adjusted net earnings or loss. Accordingly, it is unlikely that
comparisons can be made among different companies in terms of such
adjusted results reported by them. A reconciliation of adjusted net
earnings to net earnings in accordance with Canadian GAAP appears
below as well as an explanation of why we believe adjusted net
earnings is useful information.

(2) The calculation of adjusted net earnings per share and net earnings
per share in accordance with Canadian GAAP on a diluted basis takes
into account the dilutive effect of our outstanding warrants, share
options and convertible debentures. The amount of dilution per share
due to these items is dependent on our level of earnings and the
price of our common shares. For the fourth quarter and full year
2005, the number of diluted shares used in this calculation was
approximately 223 million shares, compared with 210 million for the
corresponding periods of 2004.

Chief Executive Officer's Message

The year 2005 was a very exciting one for Inco and our shareholders.We established new all-time records for total annual revenue, Canadian GAAP net earnings, and our average annual realized price for nickel in 2005. We finished the year with about $1 billion in the bank as we continued to advance the biggest growth program in our history. At Voisey's Bay, we produced our first concentrates well ahead of our original schedule and we began shipping the nickel concentrates to our operations in Ontario and Manitoba. The nickel concentrates are now being processed into finished nickel products at our Ontario and Manitoba operations. In New Caledonia, we successfully returned to the field and began ramping up construction on our Goro project.

Without doubt the most exciting development in 2005 was the announcement of our friendly offer to acquire Falconbridge Limited. When completed, the combined company would be the world's largest nickel company and a great copper company. We continue to move forward to complete the pending acquisition. This message, however, looks at Inco's historical and projected performance without the very significant benefits expected to be realized from the pending combination.

With the nickel market expected to remain strong and our nickel production expected to reach a new record high in 2006, we believe that 2006 will be another very good year for earnings and cash flow. With our strong financial position and our continued positive outlook for the nickel market, we have increased our quarterly cash dividend, as announced on February 7, 2006, by 25 per cent to an annualized rate of $0.50 per share.

Nickel Market Developments and Outlook

The stainless steel inventory adjustments that affected the global nickel market beginning in the second half of 2005 continued into the fourth quarter of 2005. However, we have seen a number of positive signs that these inventory adjustments are now behind us. Nickel demand in non-stainless applications like aerospace and hybrid vehicles remained very strong in the fourth quarter of 2005. On the supply side, we saw production disruptions at several nickel producers in the fourth quarter of 2005, tightening nickel supplies.

As we entered 2006, the nickel market has begun to gain momentum, as reflected in the benchmark LME cash nickel price which has averaged $14,711 per tonne ($6.67 per pound) over the January 3-February 13, 2006 period compared with an average LME cash nickel price of $12,628 per tonne ($5.73 per pound) in the fourth quarter of 2005. We expect that stainless steel production will rebound in 2006, led by large production increases in China as new capacity there comes on stream. Industrial production and capital investment are expected to be strong in the U.S. and to improve in Europe and Japan. We are continuing to see good demand from the U.S. and European high nickel alloys market, fueled by the aerospace and power generation end-use markets for these alloys.

In short, with strong growth in nickel demand forecast for 2006, and with limited new nickel projects or expansions currently expected to come on stream before at least 2008, we believe that nickel demand should continue to outpace supply in 2006, which will continue to put upward pressure on prices.

Operations Review

In 2005 we met or exceeded our previous October 2005 guidance on production, nickel price premiums and nickel unit cash costs at our operations, achieving consistent production and productivity improvements across the company.

During the fourth quarter of 2005, we produced 142 million pounds of nickel. Our nickel production for the full year was 487 million pounds, in line with our previous October 2005 guidance of 485 to 490 million pounds for 2005. PT Inco produced 168 million pounds of nickel in matte in 2005, the highest production in its history.

We produced 92 million pounds of refined copper and related products in the fourth quarter of 2005 and 277 million pounds of refined copper and related products for the full year, slightly above our previous October 2005 guidance. In addition, we produced 10 million pounds of copper in concentrate at Voisey's Bay in the fourth quarter of 2005. Platinum-group metals (PGMs) production was 115,000 ounces for the fourth quarter of 2005, and for the full year was 419,000 ounces, above our previous October 2005 guidance of 380,000 to 390,000 ounces.

In 2006, we expect to see a substantial increase in our nickel production. With the addition of Voisey's Bay output for a full year, we plan to raise nickel production from Inco's operations to about 535 million pounds. We have also entered into contracts with two leading smelting and refining companies to have them toll smelt and refine nickel concentrates which we have agreed to purchase from Australian sources. These arrangements are expected to provide Inco with an additional 30 million pounds of nickel for sale, giving us about 565 million pounds of nickel for sale in 2006.

We expect to increase copper production by 20 per cent in 2006, producing 340 million pounds of copper, including 65 million pounds in Voisey's Bay copper concentrates to be sold to third parties. Our 2006 PGMs production is expected to be in the range of 400,000 ounces.

In 2005, Inco's nickel unit cash cost of sales, net of by-product credits, was $2.65 per pound, better than our previous October 2005 guidance for the year of $2.85 to $2.95 per pound, but an increase in this cash measure when compared with 2004. In 2006, we expect that our nickel unit cash costs of sales net of by-product credits will be $2.35 to $2.40 per pound, taking into account the recently announced changes in industrial electricity rates in Ontario. This cost measure includes the feeds we purchase from third parties at LME or other benchmark prices and then process at our Canadian operations. Our costs will be negatively affected by the same factors affecting at least some of the other producers, notably a stronger Canadian dollar and higher energy costs, particularly the cost of high sulphur fuel oil and diesel fuel at PT Inco.

Substituting Voisey's Bay feed for external purchased feeds at our Canadian operations will help to lower our costs. However, the impact of Voisey's Bay in 2006 will not be fully realized until we have a steady flow of Voisey's Bay concentrates to our Ontario and Manitoba operations in the second half of 2006. Once we reach this goal in the second half of 2006, we expect that our nickel unit cash cost of sales will be at least $0.15 per pound lower in the last six months of 2006 than projected for the full year 2006.

In the face of ongoing cost pressures, we continue to work hard to reduce costs and improve productivity wherever we can. All of our key operating units achieved productivity increases in 2005 and we are strongly focussed on getting further improvements in 2006 and they are all delivering more consistent and reliable production.

Growth Projects

We marked a number of significant milestones at our Voisey's Bay project in 2005 - the production of first concentrate, the opening of our demonstration plant in Argentia, Newfoundland to test hydrometallurgical technologies for processing Voisey's Bay nickel concentrates, the first concentrate shipments to our operations in Ontario and Manitoba, and the first production of finished nickel from Voisey's Bay concentrate at our Sudbury operations in early January 2006.

The ramp-up at Voisey's Bay is going very well. As a result, we have raised our 2006 production estimate from this operation to about 120 million pounds of nickel in concentrate.

We continue to make good progress at our Goro project in New Caledonia. Engineering is about 70 per cent complete. Approximately 900 construction personnel are currently on site and earthworks have started for the process plant and our residue storage facility and on road realignment. We are building some 400 modules for the process plant in the Philippines and delivery of these at the Goro site is expected to begin in April.

Our capital cost estimate for the Goro mine, process plant and infrastructure of $1.878 billion is expected to be at the upper end of the plus 15 per cent confidence level. We expect to have a definitive cost estimate in the second quarter 2006, when engineering will be at least 75 per cent complete and all major contracts will have been awarded. The expected initial start-up of the project remains in late 2007.

Building on a Strong Financial Foundation

In the fourth quarter of 2005, we generated $204 million of cash flow from operations, before changes in working capital and capital expenditures. Our cash flow for the full year 2005 was $1.2 billion before changes in working capital and capital expenditures.

Our balance sheet remains strong, with a cash position of $958 million as of year-end 2005. Our debt-to-capitalization ratio was 28 per cent as of year-end 2005.

Update on our Friendly Acquisition of Falconbridge

On October 11, 2005, we announced Inco's friendly take-over offer for Falconbridge, and the two companies entered into a definitive support agreement covering this transaction.

Our offer was subject to a number of customary conditions, including receipt of all necessary regulatory clearances and acceptance of the offer by Falconbridge shareholders owning not less than 66 2/3 per cent of all outstanding Falconbridge common shares.

We have continued to move forward in our efforts to obtain the remaining required clearances from antitrust/competition authorities in the U.S. and Europe. In late January 2006, we received clearance from the Canadian Competition Bureau. Over the next two weeks or so, we currently expect to hear from the U.S. Department of Justice and the European Commission on what, if any, remedy would be required to resolve any competitive concerns that these authorities might see in the context of the pending acquisition. We remain optimistic in terms of the outcome of these processes. Assuming that the outcome of the regulatory clearance processes is positive, we would then be able to proceed with our offer and be in a position to take-up and pay for Falconbridge common shares.

The new Inco to be created by the combination of two great companies represents an exciting and unique opportunity for Inco and Falconbridge shareholders. This transaction promises to create the world's largest nickel company and a leading copper company, with outstanding growth prospects in both metals, given the combined company's strong operations and unique project portfolio. We will generate outstanding cash flow and have the ability to pursue our combined growth strategy on a scale that neither company could have contemplated individually. It will be a geographically diverse company, having a major presence in North and South America, Asia, the South Pacific and Europe. Combining the two companies' operations is also expected to create significant operating and other synergies that are uniquely available to the two of us given the proximity of our operations in Ontario and elsewhere.

While 2005 was a very good year indeed for the Company and our shareholders, with the promise and potential of the new Inco we are convinced that even more exciting times lie ahead.

I look forward to reporting on the completion of the pending acquisition of Falconbridge and our performance for the first quarter of 2006.


Scott M. Hand
Chairman and Chief Executive Officer

Reconciliation between Adjusted Net Earnings and Net Earnings in
Accordance with Canadian GAAP
We define adjusted net earnings and adjusted net earnings per share as a calculation of net earnings that excludes items that, because of the nature, timing or extent of such items, we believe do not reflect or relate to our ongoing operating performance. Accordingly, the items that are excluded from this calculation would include certain gains or losses on the sale of non-core investments, asset impairment charges and write-downs in the value of assets, non-cash currency translation adjustments relating principally to liabilities that are not expected to be discharged or settled for a number of years, reclamation or remediation costs unrelated to our current operations, income or other tax benefits or charges relating to the impact of currency translation adjustments, certain tax losses where the related benefits are not normally taken, adjustments for tax rulings and other decisions, interpretations and determinations covering, or based upon, transactions which occurred or related to prior periods and for revaluation of recorded future tax liabilities due to changes in laws or regulations affecting future tax rates, interest income associated with tax refunds, project suspension and similar costs, including related project currency hedging gains and losses, adjustments to minority interests reflecting changes thereto due to subsequent events, losses or gains on debt retirements or redemptions, strike expenses, and other gains and losses that, in each case, do not reflect on our ongoing operating performance. The determination of which items to exclude when calculating adjusted net earnings involves the application of judgment by us.

The following table provides, for the periods indicated, a reconciliation between our adjusted net earnings and net earnings as reported in accordance with Canadian GAAP:

(in millions except per
share amounts) Net Earnings
Fourth Quarter Year
2004 2004
2005 (Restated)(1) 2005 (Restated)(1)
Adjusted net earnings $ 169 $ 253 $ 811 $ 855
Currency translation
adjustments (11) (56) (59) (85)
Gain on the sale of non-core
investment 88 - 88 -
Net income tax benefits(2) 3 22 16 23
Gain on disposal of assets - 6 - 6
Asset impairment charge and
write-downs in value
of assets(4) - - (23) (191)
Estimated remediation costs(5) (13) - (13) -
Partial redemption of
convertible debt (1) - (9) -
Gain on forward currency
contracts - 2 - 10
Favourable adjustment relating
to Goro Nickel S.A.S.
minority interest - - 25 -
Goro project suspension costs
and related currency hedging
gains (losses), net - (1) - 1
Canadian GAAP net earnings,
as reported $ 235 $ 226 $ 836 $ 619

(in millions except per
share amounts) Basic Net Earnings Per Share(3)
Fourth Quarter Year
2004 2004
2005 (Restated)(1) 2005 (Restated)(1)
Adjusted net earnings $ 0.89 $ 1.35 $ 4.29 $ 4.56
Currency translation
adjustments (0.06) (0.30) (0.31) (0.45)
Gain on the sale of non-core
investment 0.46 - 0.46 -
Net income tax benefits(2) 0.02 0.12 0.08 0.12
Gain on disposal of assets - 0.03 - 0.03
Asset impairment charge and
write-downs in value
of assets(4) - - (0.12) (1.02)
Estimated remediation costs(5) (0.07) - (0.07) -
Partial redemption of
convertible debt (0.01) - (0.05) -
Gain on forward currency
contracts - 0.01 - 0.05
Favourable adjustment relating
to Goro Nickel S.A.S.
minority interest - - 0.13 -
Goro project suspension costs
and related currency hedging
gains (losses), net - (0.01) - 0.01
Canadian GAAP net earnings,
as reported $ 1.23 $ 1.20 $ 4.41 $ 3.30

(1) The 2004 results have been restated due to the retroactive
application of a change in accounting policy for convertible debt and
a restatement of our minority interest balances.
(2) The net income tax benefits recorded in the fourth quarter and full
year 2005 relate primarily to adjustments for prior period tax
rulings, decisions, interpretations or determinations and the tax
impact related to currency translation adjustments on our long-term
(3) These amounts are based upon currently issued and outstanding shares
and not diluted shares.
(4) Represents, in 2005, the write-down in value of our copper refinery
at our Ontario operations and certain assets of PT Inco.
(5) These estimated costs are unrelated to our current businesses and

We believe that the reporting of adjusted net earnings, a calculation that, as noted above, excludes certain gains or losses on the sale of non-core investments, asset impairment charges, non-cash currency translation adjustments and other items that, given their nature, timing or extent, may obscure trends in the performance of our operations or otherwise not be representative of our ongoing operations, provides our shareholders and other investors with a potentially useful picture that eliminates the volatility of such items, whether they are favourable or unfavourable, and may assist them in assessing our operating performance. In addition, management uses such information internally for operating, budgeting, financial planning and incentive compensation purposes.


The following section is limited to the outlook for Inco without taking into account the completion of the pending acquisition of Falconbridge Limited. Accordingly, the estimates and projections set forth below would change significantly upon the expected combination of Inco and Falconbridge.

Our current estimates for production for the first quarter and full year of 2006 for nickel, copper and platinum-group metals ("PGMs"), including PGMs produced from purchased material, are as follows:

First Quarter Full Year
2006 2006(1)
------------- -------------

Nickel - tonnes (thousands) 59 - 61 256
- pounds (millions) 130 - 135 565

Copper - tonnes (thousands) 33 154
- pounds (millions) 75 340

PGMs - troy ounces (thousands) 80 400

(1) Includes 30 million pounds of nickel returned for sale from third
party toll smelting and refining arrangements, with five million
pounds of toll finished nickel production in the first quarter of

We currently project that our nickel unit cash cost of sales after by-product credits for the full year 2006 will be in the range of $2.35 to $2.40 per pound ($5,182 to $5,292 per tonne). This estimate excludes the costs of certain purchased intermediates and related treatment and refining charges of third parties. A reconciliation between our nickel unit cash costs of sales both before and after by-product credits as indicated and cost of sales in accordance with Canadian GAAP for the fourth quarter and full year 2005 and 2004 is set forth in the table entitled "Reconciliation of Nickel Unit Cash Cost of Sales to Canadian GAAP Cost of Sales" below. The premium on our nickel products for 2006 we currently expect to realize over the London Metal Exchange ("LME") cash nickel prices is approximately $0.05 to $0.10 per pound ($110 to $220 per tonne). Our premiums are affected by fluctuations in the LME cash nickel price and the effect this has on the price we receive for the nickel in matte product produced by PT International Nickel Indonesia Tbk ("PT Inco"), the lag effect that changes in the LME benchmark price have on the pricing of certain of our nickel products, and how certain of our specialty nickel products are priced. As reflected in the chart above, we have historically experienced, and expect to continue to experience, some quarter-to-quarter variability in production levels of our primary metals products due to planned maintenance shutdowns of operations and other normal planned actions.

The current First Call consensus mean estimate for our adjusted net earnings per share for 2006 is $3.50 on a diluted basis. Based upon the current First Call mean forecast for the average LME cash nickel price for 2006, which we understand to be $6.45 per pound, and our understanding of the latest mean forecasts by First Call and London Bullion Market Association (LBMA) for the prices for our other metal products for 2006, and taking into account our production, premium and nickel unit cash cost of sales after by-product credits estimates indicated above, we are comfortable with the current First Call consensus estimate for 2006 for our adjusted net earnings per share of $3.50, on a diluted basis. We are not endorsing how First Call arrives at its consensus mean estimate for our 2006 adjusted net earnings per share on a diluted basis or First Call's forecasts for the LME cash nickel price, or the other benchmark metal prices published by First Call and LBMA, for 2006. Our policy continues to be that we do not publicly forecast where nickel and other metal prices will be in the future given the historic volatility of these prices and the level of economic uncertainty that currently exists in at least some of our key geographic markets. The LME cash nickel price averaged $6.67 per pound ($14,711 per tonne) for the January 3-February 13, 2006 period. The LME cash nickel price on February 13, 2006 was $6.77 per pound ($14,935 per tonne).

The earnings per share consensus estimate above refers to an estimate for adjusted net earnings and excludes certain adjustments that would be made in the calculation of net earnings in accordance with Canadian GAAP. Since such adjustments would include assumptions or forecasts relating to changes in the Canadian-U.S. dollar exchange rate and other currency exchange rate changes and other external factors that we do not believe we are in a position to predict with any degree of certainty, we do not provide a reconciliation between any adjusted net earnings estimate and a corresponding net earnings estimate in accordance with Canadian GAAP.

In terms of the current estimated sensitivity of our earnings per share, both for basic and diluted purposes, to changes in nickel prices, for every change of 10 cents, up or down, per pound in our realized nickel price over a full year, our Canadian GAAP basic and diluted net earnings per share (EPS) over a full year would change, up or down, by about 14 cents and 12 cents, respectively. As reflected in the table below, while our financial results are most sensitive to changes in (1) nickel prices, our results are also sensitive to changes in copper and other prices as well as, on the cost side, changes in oil and natural gas prices and (2) the Canadian-U.S. dollar exchange rate given that a substantial portion of our expenses are incurred in Canadian dollars:


Amount of Change Basic EPS Diluted EPS
(up or down) Effect Effect(2)
----------------- ----------- ------------
Realized nickel price $ 0.10/lb. $ 0.14 $ 0.12
Realized copper price(3) 0.10/lb. 0.08 0.07
Realized palladium price 50.00/troy oz 0.03 0.03
Realized platinum price(3) 50.00/troy oz 0.03 0.02
Realized cobalt price 1.00/lb. 0.01 0.01
Cdn.-U.S. exchange rate(4)(5) 0.01 0.06 0.05
Fuel oil price (West Texas
Intermediate)(3)(5) 1.00/bbl 0.007 0.006
Natural gas price(5) 0.10/MM BTU 0.002 0.002

(1) Canadian GAAP basic (Basic EPS Effect) and diluted (Diluted EPS
Effect) net earnings per share. Each sensitivity assumes other
factors are held constant.
(2) Based on 223 million diluted shares.
(3) Includes the impact of hedging activities as of December 31, 2005.
(4) Represents the impact on Canadian dollar-denominated operating costs
and excludes the translation effect relating to Canadian
dollar-denominated liabilities and to accrued taxes for Canadian
dollar currency translation effects associated with U.S.
dollar-denominated liabilities.
(5) Increases in these costs and exchange rate have a negative effect on

Our capital expenditures for our existing operations and growth projects are also sensitive to changes in exchange rates depending upon the currency in which such expenditures are incurred. It is currently projected that our consolidated total capital expenditures for 2006 will be approximately $1.82 billion. Taking into account capital contributions expected to be made in 2006 by other shareholders in our Goro project, certain previously announced government assistance relating to our growth projects and other financing arrangements that are already in place for these projects, we currently project that of this $1.82 billion total estimate, we will have funded or be required to fund about $1.34 billion.

Commentary on Results for the Fourth Quarter and Full Year 2005

Results of Operations
The following table summarizes our results in accordance with Canadian GAAP for the periods indicated:

Three Months Ended Year Ended
(in millions of U.S. dollars December 31, December 31,
except per share amounts) 2005 2004 2005 2004
(Restated) (Restated)

Net sales $ 1,121 $ 1,161 $ 4,518 $ 4,278
Net earnings 235 226 836 619
Net earnings per common share
- basic 1.23 1.20 4.41 3.30
- diluted 1.06 1.08 3.75 2.95
Cash provided by operating
activities 39 294 739 1,393
The increase in net earnings for the fourth quarter of 2005 compared with the fourth quarter of 2004 was primarily the result of a gain on sale of a non-core investment, lower currency translation adjustments, higher realized selling prices for copper and certain PGMs and higher deliveries of PGMs and copper partially offset by lower realized prices for nickel, lower Inco-source nickel deliveries and higher nickel unit cash cost of sales before by-product credits. The increase in net earnings for full year 2005 compared with 2004 was primarily the result of the previously reported non-cash Goro project asset impairment charge of $191 million, after-taxes, recorded in 2004, higher realized selling prices for nickel, copper and certain PGMs and higher other income, partially offset by higher nickel unit cash cost of sales before by-product credits and lower deliveries of Inco-source nickel, copper and PGMs.

The effect of certain of these items on our results of operations is set forth under "Reconciliation between Adjusted Net Earnings and Net Earnings in Accordance with Canadian GAAP" above.

Net sales

Net sales decreased in the fourth quarter of 2005 by three per cent due to an eight per cent decline in nickel deliveries as well as a 10 per cent decrease in the average realized selling price for nickel. This was partially offset by a 17 per cent increase in copper deliveries, a 38 per cent increase in the average realized selling price for copper, a 46 per cent increase in PGMs deliveries and higher realized prices for certain PGMs. Net sales increased for the year 2005 by six per cent due to higher selling prices for nickel, copper and certain PGMs partially offset by lower deliveries of nickel, copper and PGMs.

Cost of sales and other expenses

The following table summarizes our nickel unit cash cost of sales before and after by-product credits for the periods indicated:

Three months ended Year ended
December 31, December 31,
2005 2004 2005 2004
Nickel unit cash cost of sales
before by-product credits
per pound $ 2.91 $ 2.77 $ 3.04 $ 2.60
Nickel unit cash cost of sales
after by-product credits
per pound $ 2.24 $ 2.56 $ 2.65 $ 2.32
For the fourth quarter and full year 2005 compared with the corresponding periods of 2004, the increase in nickel unit cash cost of sales before by-product credits was principally due to (1) higher costs for high sulphur fuel oil and diesel fuel at PT Inco, (2) higher electricity and natural gas prices at our Ontario operations, (3) the negative impact on unit cost of lower nickel production, (4) a higher average Canadian-U.S. dollar exchange rate that adversely affected our costs and (5) higher spending on supplies and services due, in part, to our efforts to expand production. These adverse effects on unit costs were partially offset by (1) the net cost reductions and related savings and (2) lower costs for purchased nickel intermediates primarily as a result of lower volumes of purchased intermediates processed at our Ontario and Manitoba operations in 2005. For the fourth quarter of 2005 compared with the fourth quarter of 2004, the decrease in nickel unit cash cost of sales after by-product credits was due to (1) higher by-product credits resulting from higher deliveries of PGMs and (2) higher realized prices for copper and certain PGMs. This was partially offset by higher unit cash cost of sales before by-product credits. For the full year 2005 compared with the full year 2004, the increase in nickel unit cash cost of sales after by-product credits was primarily due to higher unit cash cost of sales before by-product credits partially offset by higher by-product credits. The increase in by-product credits was primarily due to higher realized prices for copper and certain PGMs partially offset by lower deliveries of copper and certain PGMs.

We have continued to use purchased nickel intermediates to increase processing capacity utilization at our Ontario and Manitoba operations. While the cost of purchased nickel intermediates is higher than that for processing our own mine production and such cost increases as the prevailing prices, LME cash nickel or other benchmark prices, on which this material is purchased by us increases, the price realizations are also higher, resulting in margins on these purchases remaining relatively unchanged.

A reconciliation of our nickel unit cash cost of sales before and after by-product credits to cost of sales under Canadian GAAP for the periods indicated is shown in the table entitled "Reconciliation of Nickel Unit Cash Cost of Sales to Canadian GAAP Cost of Sales" below.

In the fourth quarter and full year 2005, we realized net cost reductions and related savings of $16 million and $40 million, respectively, below our full year 2005 target of $60 million for these savings.

Nickel production decreased to 64,359 tonnes (142 million pounds) in the fourth quarter of 2005 compared with 66,195 tonnes (146 million pounds) in the fourth quarter of 2004. Nickel production decreased to 220,727 tonnes (487 million pounds) for the full year 2005 compared with 236,817 tonnes (522 million pounds) for the full year 2004. The decrease in nickel production in the fourth quarter compared with the same period of 2004 was primarily due to the need to rebuild the required inventories for our Clydach, Wales refinery after the previously announced planned shutdown and the related slower than planned ramp-up after that shutdown experienced at our Ontario operations in the third quarter of 2005. The decrease in nickel production for 2005 compared with 2004 was largely due to the same reasons affecting fourth quarter 2005 production, a longer than planned shutdown at our Ontario operations and a slower ramp-up after that shutdown and a longer than usual maintenance shutdown during the third quarter at our Manitoba operations, a shutdown which was necessary to prepare these operations for the arrival of the Voisey's Bay concentrates in the fourth quarter of 2005. PT Inco produced a record 168 million pounds of nickel in matte in 2005.

Other income

In the fourth quarter of 2005, other income increased by $76 million compared with the corresponding period in 2004 due principally to a gain from the sale of a non-core investment in a junior mining company in the amount of $88 million. For the year 2005, the increase in other income relates to this gain partially offset by a charge resulting from the conversions and settlement of such conversions in cash of a portion of our LYON Notes originally issued in March 2001.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $9 million in the fourth quarter of 2005 due to lower consulting fees. Selling, general and administrative expenses increased by $15 million for the year 2005 primarily due to higher capital taxes and higher expenses associated with share options that had been granted in prior years with share appreciation rights based upon the price of our common shares.

Income and mining taxes

Our effective tax rate for the fourth quarter of 2005 of approximately 21 per cent was lower than the combined statutory income and mining tax rate in Canada of about 39 per cent due principally to the non-taxable gain of $88 million on the sale of a non-core investment referred to above and a decrease in estimated net mining taxes. Our effective tax rate for the year 2005 of 31 per cent was lower than the combined statutory income and mining tax rate in Canada of about 39 per cent due principally to the benefit of profits earned in jurisdictions having lower tax rates and the non-taxable gain noted above.

Minority Interest

For the full year 2005, minority interest included a previously recorded favourable adjustment of $25 million, reflecting the recovery of losses previously taken by Inco due to insufficient minority interest balances existing in 2004 to absorb the share by the minority interest of the impairment charge associated with the Goro project recorded in the second quarter of 2004.

Cash Flows and Financial Condition

Net cash provided by operating activities in the fourth quarter of 2005 was $39 million, compared with $294 million in the fourth quarter of 2004. The decrease in net cash provided by operating activities was primarily due to higher working capital requirements in the fourth quarter of 2005 due, in part, to the required working capital ramp-up for Voisey's Bay as it commenced commercial production as of December 1, 2005. Net cash provided by operating activities in the year 2005 was $739 million, compared with $1,393 million in 2004. The decrease in net cash provided by operating activities in 2005 was primarily due to an increase in working capital at the end of 2005 compared with 2004. The increased working capital requirements were primarily related to reduced income and mining tax payable balances in view of the significant tax payments of $245 million made during the first quarter of 2005 in respect of the 2004 taxation year and higher tax instalments paid in 2005. In addition, inventory increased primarily as a result of increased production costs, increased finished copper inventory as a result of the previously indicated closure of the copper refinery in Ontario in the month of December 2005 and higher in-process inventories of Voisey's Bay concentrates as well as the establishment of supplies inventories at Voisey's Bay.

Net cash used for investing activities was $216 million in the fourth quarter of 2005 compared with $325 million in the fourth quarter of 2004. Investing activities in the fourth quarter of 2005 included $103 million of proceeds from the sale of an investment referred to above. Net cash used for investing activities for the year 2005 of $892 million increased slightly from the year 2004 level of $881 million primarily due to (1) higher capital spending, mainly in respect of our Goro project and (2) higher sustaining capital expenditures at our Canadian operations and PT Inco, partially offset by (x) lower capital spending for our Voisey's Bay project and the proceeds from the sale of an interest in the Goro project, (y) subsequent contributions from our partner in the Goro project and (z) the proceeds from the sale of an investment referred to above.

Net cash provided by financing activities for the year 2005 was $35 million. In December 2005, we received $49 million in respect of the French government-sponsored financing for Goro. During the fourth quarter of 2005, we also received $200 million from the drawdown of the balance of our $400 million term loan facility that matures in December 2011. In addition to certain debt repayments, cash used for financing activities in 2005 included $76 million in respect of the tender for conversion and settlement in cash at our election of a portion of our LYON Notes. During 2005, LYON Notes representing approximately $163 million aggregate principal amount were tendered for conversion. At our option, we elected to settle a portion of the conversions tendered in accordance with the terms of the LYON Notes for cash in lieu of shares in the amount of $76 million. The difference between the cash settlement price of $76 million and the book value of the LYON Notes tendered and settled in cash in the total amount of $41 million represents a charge of $35 million. For accounting purposes, the LYON Notes are bifurcated between debt and equity, the equity portion representing the value of the holders' conversion options. Consequently, the charge of $35 million has been bifurcated between a charge to earnings of $9 million and a charge to retained earnings of $26 million. The remainder of the LYON Notes tendered for conversion were, at our option, settled in shares with no impact on net earnings.

At December 31, 2005, cash and cash equivalents were $958 million, down from $1,076 million at December 31, 2004, primarily reflecting cash outflows for capital expenditures for our growth projects and sustaining capital expenditures at our operations. Total debt was $1,974 million at December 31, 2005, compared with $1,868 million at December 31, 2004. Total debt as a percentage of total debt plus shareholders' equity was 28 per cent at December 31, 2005, compared with 30 per cent at December 31, 2004.

As previously announced, on February 7, 2006 Inco's Board of Directors declared an increased quarterly dividend on our Common Shares of $0.125 per share, payable March 1, 2006 to shareholders of record as of February 17, 2006.

Changes in Accounting Policies and Restatements

Effective January 1, 2005, on a retroactive basis, we adopted revisions to Canadian Institute of Chartered Accountants (CICA) Section 3860, Financial Instruments - Disclosure and Presentation. The revisions relate to the accounting for instruments for which the issuer has the right to settle in cash or its own shares. Such an instrument is bifurcated between debt and equity in accordance with this revised standard. This change impacted the accounting treatment for our LYON Notes, Convertible Debentures due 2023 and 3 1/2% Subordinated Convertible Debentures due 2052 which were previously treated as equity in accordance with EIC No. 71, Financial Instruments that may be Settled at the Issuer's Option in Cash or its own Equity Instruments. In the fourth quarter 2005, we restated our prior year and current year quarterly minority interest and deferred income taxes to correct an error in the allocation of net earnings to minority interests, and also restated prior year and current year quarterly diluted earnings per share to correct an error in applying the "if converted" method with respect to our convertible debt. The aggregate impact of these restatements on diluted earnings per share was as follows: first quarter 2005 - nil; second quarter 2005 - an increase of $0.01 per share; and third quarter 2005 - a decrease of $0.01 per share. The impact on 2004 diluted earnings per share was an increase of $0.02 per share.

Access to Webcast of February 14, 2006 Presentation to the Investment

Community on Fourth Quarter 2005 Results and Related Matters

As previously announced, interested investors can listen to our presentation to the investment community, expected to include an analysis of Inco's 2005 financial and operating results as well as a review of (1) key operational, marketing and other current drivers of Inco's business, (2) the "new" Inco to be created by the pending acquisition of Falconbridge Limited, (3) Inco's Voisey's Bay and Goro projects and key current strategic objectives and (4) our current outlook for 2006 and beyond.

This presentation is scheduled for February 14, 2006, beginning at 3:00 p.m. (Toronto time), and can be accessed by visiting the website of a third-party webcasting service we will be using, CNW Group Ltd., at www.newswire.ca/webcast, at least five minutes before the start of the presentation. Copies of any slides or other statistical information to be used for the conference call can be accessed and will be available for online viewing by persons with a computer system and Internet connection meeting certain minimum requirements through www.newswire.ca/webcast or through Inco's website, www.inco.com, by clicking on the "Latest Quarterly Webcasts" link on the homepage.

The archival webcast of the presentation can be accessed via the Internet through www.newswire.ca/webcast. A recording of the presentation can be listened to until 11:59 p.m. (Toronto time) on February 28, 2006 by dialling 1-800-558-5253 in North America and by entering the reservation number 21280521. This recording is also available outside North America by dialling 416-626-4100 and by entering the same reservation number.

Cautionary Statement Regarding Forward-Looking Statements

This news release contains forward-looking statements regarding the Company's offer to purchase all of the common shares of Falconbridge Limited, including statements regarding the timing thereof and the anticipated timing of achievement of milestones in the regulatory clearance process, anticipated financial or operating performance of the combined company, expected synergies and cost savings from the proposed combination of Inco and Falconbridge, and strategies, objectives, goals and targets of the combined company, and forward-looking statements regarding the Company alone, including anticipated financial or operating performance, the Company's costs on a stand-alone basis, its position as a low-cost producer of nickel, production levels for nickel, copper and platinum-group metals for its first quarter and full year 2006 for the Company as a whole and at its Indonesian, Voisey's Bay and other Canadian operations, nickel market conditions and nickel demand and supply both globally and for certain markets and uses, premiums realized on its metals prices, nickel unit cash cost of sales after by-product credits, third party toll smelting and refining arrangements, production costs on its own mine production, nickel inventories, its financial results, including adjusted net earnings per share on a diluted basis, cash flow from operations, cash generation, the effect on and sensitivity of financial results to changes in nickel and other metal prices, exchange rates, energy and other costs and its common share price, cost reduction and related savings objectives, construction, commissioning, initial start-up, and other schedules, capital costs and other aspects of its Goro project, arrangements covering copper production and sales, capital expenditures at the Company's growth projects, overall capital expenditures, contributions from shareholders and government programs and other external sources of funds, and governmental clearances or approvals required, for its growth projects, tax payments, planned maintenance and other shutdowns and subsequent start-ups at certain operations, new collective labour agreements, including the risk of a disruption or work stoppage, and other issues and aspects relating to its business and operations. Inherent in those statements are known and unknown risks, uncertainties, assumptions and other factors well beyond the Company's ability to control or predict. Actual results and developments may differ materially from those contemplated by these statements depending on, among others, such key factors as, in the case of the planned acquisition of Falconbridge, the risks that we will not be able to obtain the required approvals or clearances from regulatory and other agencies and bodies on a timely basis, or divestitures or other remedies required by regulatory agencies may not be acceptable or may not be completed in a timely manner, we may not meet the other remaining conditions of our offer, we may not realize the anticipated annualized benefits and operational and other synergies and cost savings from the acquisition or related divestitures, restructurings, integration and other initiatives associated with the planned combination of Inco and Falconbridge and we may realize unanticipated costs and/or delays or difficulties relating to such integration, and such other factors relating to Inco itself as business and economic conditions in the principal markets for the Company's products, the supply, demand and prices for metals to be produced, purchased nickel intermediates and nickel-containing stainless steel scrap and other substitutes and competing products for the primary metals and other products the Company produces, developments concerning labour relations, the Company's deliveries, production levels, production and other anticipated and unanticipated costs and expenses, metals prices, premiums realized over LME cash and other benchmark prices, tax benefits and charges, changes in tax legislation, hedging activities, the Canadian-U.S. dollar and other exchange rates, changes in the Company's common share price, the capital costs, scope, schedule, required permitting and other key aspects of the Goro project, the timing of receipt of all necessary permits and governmental, regulatory and other clearances or approvals, and engineering and construction timetables, for the Goro project, the necessary shareholder and government program sources of financing for the Goro and other projects, political unrest or instability in countries or territories such as Indonesia and New Caledonia, risks involved in mining, processing and exploration activities, research and development activities, the accuracy of our estimated mineral/ore reserves, resolution of environmental and other proceedings and the impact of various environmental regulations and initiatives, market competition, the ability to continue to pay quarterly cash dividends in such amounts as Inco's Board of Directors may determine in light of other uses for such funds and other factors, and other risk factors listed from time to time in the Company's reports filed with the U.S. Securities and Exchange Commission. The forward-looking statements included in this release represent the Company's views as of the date of this release. While the Company anticipates that subsequent events and developments may cause the Company's views to change, the Company specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of this release. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on any forward-looking statements.

Material Assumptions

A number of assumptions were made by Inco in preparing its guidance for 2006 and making certain other forward-looking statements for 2006 and beyond and in connection with our pending acquisition of Falconbridge Limited. Such assumptions include, but are not limited to, those set forth under the "Outlook" section of this press release and the slides and other material covering the presentations being made as of this date which are available on our website and on the SEDAR system in Canada. These assumptions include estimates on the U.S. dollar-Canadian dollar exchange rate for 2006, global industrial production and in key geographic markets, interest rates, global nickel and other metals demand and supply and in key geographical markets, and growth in the key end-use markets for the metals produced by the Company, that we would not have any labour, equipment or other disruptions at any of our operations of any significance in 2006 other than any planned maintenance or similar shutdowns and that any third parties which we are relying on to supply purchased intermediates or provide toll smelting or other processing do not experience any unplanned disruptions. Some of the material assumptions made by us involve confidential or particularly sensitive information and, accordingly, we do not believe it is appropriate to disclose such assumptions for competitive or other business reasons. Forward-looking statements for time periods subsequent to 2006 involve longer term assumptions and estimates than forward-looking statements for 2006 and are consequently subject to greater uncertainty. Therefore, the reader is especially cautioned not to place undue reliance on such long-term forward-looking statements.

Important Legal Information

This communication may be deemed to be solicitation material in respect of Inco's proposed combination with Falconbridge. Inco filed with the SEC, on October 24, 2005, a registration statement on Form F-8 (containing an offer to purchase and a share exchange take-over bid circular) and on each of December 15, 2005 and January 20, 2006, an amendment to such form F-8, in connection with the proposed combination. Inco has also filed, and will file (if required), other documents with the SEC in connection with the proposed combination. Falconbridge has filed a Schedule 14D-9F in connection with Inco's offer and has filed, and will file (if required), other documents regarding the proposed combination, in each case with the SEC.

INVESTORS AND SECURITYHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain copies of the registration statement and Inco's and Falconbridge's SEC filings free of charge at the SEC's website (www.sec.gov). In addition, documents filed with the SEC by Inco may be obtained free of charge by contacting Inco's media or investor relations departments.

February 14, 2006

Inco Limited

Key Financial and Operating Statistics

For the three months For the year
ended December 31, ended December 31,
2005 2004 2005 2004
Average Realized Prices
Nickel(1) - per tonne $ 12,780 $ 14,138 $ 14,842 $ 13,906
- per pound 5.80 6.41 6.73 6.31
Copper - per tonne 4,528 3,283 3,839 2,916
- per pound 2.05 1.49 1.74 1.32
(1) Including intermediates

LME Average Cash Prices
Nickel - per tonne 12,628 14,080 14,733 13,852
- per pound 5.73 6.39 6.68 6.28
Copper - per tonne 4,297 3,094 3,684 2,868
- per pound 1.95 1.40 1.67 1.30

Nickel in all forms (tonnes)
- Inco-source 58,843 67,271 223,811 235,185
- Purchased finished 6,607 3,693 22,471 16,697
65,450 70,964 246,282 251,882
Copper (tonnes) 34,814 29,694 120,543 124,884
Cobalt (tonnes) 417 514 1,694 1,542
Platinum-group metals (in
thousands of troy ounces) 118 81 415 420

Net Sales to Customers by
Product (in millions)
Primary nickel $ 837 $ 1,004 $ 3,655 $ 3,503
Copper 158 97 463 364
Precious metals 81 51 267 246
Other 45 9 133 165
$ 1,121 $ 1,161 $ 4,518 $ 4,278

Nickel Production in all
Forms (tonnes) 64,359 66,195 220,727 236,817

Finished Nickel Inventories
at end of Period (tonnes) 23,444 27,334 23,444 27,334

Inco Limited

Reconciliation of Nickel Unit Cash Cost of Sales to Canadian GAAP
Cost of Sales

For the three months For the year
(in millions of U.S. dollars ended December 31, ended December 31,
except where noted) 2005 2004 2005 2004

Cost of sales and other
expenses, excluding
depreciation and depletion $ 726 $ 643 $ 2,633 $ 2,348
By-product costs (174) (147) (635) (572)
Purchased finished nickel (87) (52) (331) (234)
Delivery expense (8) (8) (35) (33)
Other businesses cost of sales (10) (9) (39) (38)
Non-cash items(1) (11) (3) (32) (28)
Remediation, demolition and
other related expenses (33) (12) (57) (30)
Adjustments associated with
affiliate transactions (17) 10 34 (54)
Asset write offs and related
charges(2) - - (32) -
Other (10) (12) (9) (11)
Nickel cash cost of sales
before by-product credits(3) 376 410 1,497 1,348
By-product net sales (261) (178) (825) (719)
By-product costs 174 147 635 572
Nickel cash cost of sales
after by-product credits(3) $ 289 $ 379 $ 1,307 $ 1,201
Inco-source nickel deliveries
(millions of pounds) 129 148 493 518
Nickel unit cash cost of sales
before by-product credits
per pound $ 2.91 $ 2.77 $ 3.04 $ 2.60
Nickel unit cash cost of sales
before by-product credits
per tonne $ 6,415 $ 6,107 $ 6,702 $ 5,732
Nickel unit cash cost of sales
after by-product credits
per pound $ 2.24 $ 2.56 $ 2.65 $ 2.32
Nickel unit cash cost of sales
after by-product credits
per tonne $ 4,938 $ 5,644 $ 5,842 $ 5,115

(1) Post-retirement benefits other than pensions.
(2) Relates to certain assets at PT Inco that had no future value to PT
Inco's operations and the write-off of the book values of certain
equipment assessed to be beyond economic repair and to PT Inco's
change in accounting for asset sales and other dispositions.
(3) Nickel cash cost of sales before and after by-product credits
includes costs for both Inco-source and purchased nickel

Inco Limited

Consolidated Statement of Earnings

For the three months For the year
(in millions of U.S. dollars ended December 31, ended December 31,
except per share amounts) 2005 2004 2005 2004
(Restated) (Restated)

Net sales $ 1,121 $ 1,161 $ 4,518 $ 4,278

Costs and expenses
Cost of sales and other
expenses, excluding
depreciation and depletion 726 643 2,633 2,348
Depreciation and depletion 69 70 256 248
Selling, general and
administrative 51 60 207 192
Research and development 12 7 35 29
Exploration 13 13 43 32
Currency translation
adjustments 11 56 59 85
Interest expense 10 7 26 36
Asset impairment charge - - 25 201
892 856 3,284 3,171
Other income, net 91 15 83 49
Earnings before income and
mining taxes and minority
interest 320 320 1,317 1,156
Income and mining taxes 66 63 408 432
Earnings before minority
interest 254 257 909 724
Minority interest 19 31 73 105
Net earnings $ 235 $ 226 $ 836 $ 619
Net earnings per common share
Basic $ 1.23 $ 1.20 $ 4.41 $ 3.30
Diluted $ 1.06 $ 1.08 $ 3.75 $ 2.95
Weighted average common shares
outstanding, in thousands
Basic 191,023 187,909 189,425 187,550
Diluted 222,519 210,205 222,706 210,156

Inco Limited

Consolidated Balance Sheet

December 31, December 31,
(in millions of U.S. dollars) 2005 2004
Current assets
Cash and cash equivalents $ 958 $ 1,076
Accounts receivable 673 601
Inventories 996 834
Other 68 42
Total current assets 2,695 2,553
Property, plant and equipment 8,459 7,587
Accrued pension benefits asset 611 422
Deferred charges and other assets 245 154
Total assets $ 12,010 $ 10,716
Current liabilities
Long-term debt due within one year $ 122 $ 107
Accounts payable 253 331
Accrued payrolls and benefits 221 208
Other accrued liabilities 533 399
Income and mining taxes payable 36 279
Total current liabilities 1,165 1,324
Deferred credits and other liabilities
Long-term debt 1,852 1,761
Deferred income and mining taxes 2,018 1,891
Accrued post-retirement benefits liability 732 671
Asset retirement obligation 168 171
Deferred credits and other liabilities 131 58
Total liabilities 6,066 5,876
Minority interest 761 470
Shareholders' equity
Convertible debt 362 418
Common shareholders' equity
Common shares issued and outstanding
192,237,394 (2004 - 188,133,439 shares) 3,000 2,891
Warrants 62 62
Contributed surplus 578 571
Retained earnings 1,181 428
4,821 3,952
Total shareholders' equity 5,183 4,370
Total liabilities and shareholders' equity $ 12,010 $ 10,716

Inco Limited

Consolidated Statement of Cash Flows

For the three months For the year
ended December 31, ended December 31,
(in millions of U.S. dollars) 2005 2004 2005 2004
(Restated) (Restated)

Operating activities
Earnings before minority
interest $ 254 $ 257 $ 909 $ 724
Items not affecting cash
Depreciation and depletion 69 70 256 248
Deferred income and mining
taxes 46 20 77 63
Asset impairment charge - - 25 201
Other (60) 44 57 114
Contributions greater than
post-retirement benefits
expense (105) (116) (137) (140)
Decrease (increase) in non-cash
working capital related to
Accounts receivable (93) (51) (72) (166)
Inventories (114) (22) (149) (88)
Accounts payable and accrued
liabilities 72 79 34 126
Income and mining taxes
payable (52) (64) (235) 249
Other 22 77 (26) 62
Net cash provided by
operating activities 39 294 739 1,393
Investing activities
Capital expenditures (348) (339) (1,168) (876)
Partial sale of interest in
Goro Nickel S.A.S. - - 150 -
Proceeds from the sale of
an investment 103 - 103 -
Other 29 14 23 (5)
Net cash used for investing
activities (216) (325) (892) (881)
Financing activities
Repayments of long-term debt (3) (2) (105) (100)
Long-term borrowings 211 203 214 205
French government-sponsored
Girardin Act financing 49 41 49 41
Cash settlement of LYON
Notes converted (11) - (76) -
Common shares issued 6 12 40 30
Common dividends paid (19) - (57) -
Dividends paid to minority
interest (10) (5) (49) (20)
Other (4) (11) 19 (10)
Net cash provided by financing
activities 219 238 35 146
Net increase (decrease) in
cash and cash equivalents 42 207 (118) 658
Cash and cash equivalents at
beginning of period 916 869 1,076 418
Cash and cash equivalents at
end of period $ 958 $ 1,076 $ 958 $ 1,076

%SEDAR: 00001084EF

Canada Newswire Ltd.
INCO Press Release