DECEMBER 16, 2009

Indonesia Clears Railway Investment From Mideast By TOM WRIGHT

JAKARTA, Indonesia—Government officials said they had cleared a regulatory logjam holding up $1 billion in funding from Middle East investors for a railroad project, a major step forward for a nation that has failed in recent years to attract large amounts of foreign capital because of bureaucratic hurdles.

Investors including the United Arab Emirates and Dubai-based Trimex Group plan to begin construction early next year on a railway in Indonesia's East Kalimantan province, the Indonesian Investment Coordinating Board said Tuesday. MEC Infrastructure, a joint venture of Trimex's MEC Holdings and the U.A.E. government of Ras al Khaimah, plan to complete the railway in 2012.

The 130-kilometer track, the first private railway in Indonesia, will link the Muara Wahau coal mine in East Kalimantan's East Kutai district with the coast, where MEC Holdings is spending $250 million on a new port. The coal mine is being developed by MEC Coal, another joint venture of MEC Holdings and Ras al Khaimah.

The project is part of $5 billion in investments by the group and India's state-owned National Aluminum Co., the investment board said. The mine and railway are central to a complex of facilities that will also include a coal-fired power plant, an aluminum smelter, a fertilizer plant and a port terminal.

The investors took their plans to the Indonesian government in July of last year. But the project was held up by bureaucratic delays, including difficulties in obtaining a railway operating license from the Transport Ministry. The problem was resolved recently as part of efforts to unblock investment bottlenecks, said Gita Wirjawan, chairman of the investment board.

"The railway permit approval was a serious, coordinated effort" by local and central government officials, Mr. Wirjawan said. "It shows each party's commitment towards fulfilling its priority development goals in infrastructure."

A spokeswoman for Trimex in Dubai confirmed the project's go-ahead.

Indonesia's abundant supplies of coal, palm oil and other natural resources have attracted investment from China, the Middle East and India in recent years. But legal uncertainties and such bureaucratic hitches as problems over licensing and land titles have delayed many projects. That has prompted investors from the U.S., Canada, Australia and Japan to postpone large-scale natural-resource investments.

President Susilo Bambang Yudhoyono, who started a second five-year term in October, has pledged to focus on unblocking these investment bottlenecks, restoring faith in Indonesia's legal system and building much-needed new infrastructure.

Mr. Yudhoyono in October appointed Mr. Wirjawan, a former Indonesia head for J.P. Morgan Chase & Co., as chairman of the investment board, with a mandate to attract investors and push through infrastructure deals with Indonesia's powerful local governments. Mr. Yudhoyono raised Mr. Wirjawan's position to cabinet level to underscore the importance of attracting foreign investment.

Mr. Wirjawan said the railway deal "serves as a huge vote of confidence from an investor base that Indonesia shares long-term strategic interests with."

MEC Coal will invest $2 billion in an aluminum smelter with India's National Aluminum, producing 500,000 metric tons a year, the investment board said, without giving a time frame.

The partners will invest a further $1.5 billion in a 1,400-megawatt power plant powered by coal from MEC Coal's mine, which is slated to begin production of two million metric tons a year in 2010. The plant will supply power to the aluminum smelter.

Printed in The Wall Street Journal, page A3

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