Energy-Hungry China Eyes Indonesia

Hong Kong. Last year, it was Australia that drew Chinese suitors seeking energy, metals and coal deals — now it’s resource-rich Indonesia. China’s appetite for natural resources is undiminished despite 2009’s acquisition spree in Australia, Canada, and Africa. While those countries are still on China’s radar, Indonesia is commanding ever more of its deal-making attention.

PetroChina, Sinopec, Sinosteel, Minmetals and China Investment Corp., a $300 billion sovereign wealth fund, are all aggressively scouring Southeast Asia’s largest economy for takeover targets and joint venture partners, according to investment banking sources who know and advise the companies. Targets include LNG projects, oil blocks owned by foreign companies and coal mines, with some potential deals worth more than $1 billion, the sources said. “There’s enormous interest from China in Indonesia,” said an Asia-based investment banker who has advised companies on deals in Indonesia. “These include financing deals and stakes.”

Natural gas is at the top of China’s shopping list, the sources said. China is struggling to rely on gas for more of its surging energy needs ­— its LNG imports increased by two-thirds last year to 5.53 million tons. There are multiple LNG projects in need of financing and development partners in Indonesia, and China is hungry for a slice of the action. Indonesia’s giant Natuna gas project is one option for China. PetroChina’s parent, China National Petroleum Corp., as well as Chevron and Eni, has been named as a potential development partner with PT Pertamina.

Still, that development is mired in controversy. Indonesia said last year it awarded Pertamina the operating rights to the Natuna project because Exxon Mobil’s contract giving it a 76 percent share had expired in 2005. The US oil major, however, has repeatedly said the contract ran until early 2009. While Indonesia presents an opportunity for China, the country comes with ample risks — from political corruption to opaque regulations and growing resource nationalism. But China has already set the stage for more aggressive dealmaking in Indonesia’s politically sensitive resources industry. CIC agreed in September to loan $1.9 billion to coal firm PT Bumi Resources, which is controlled by the politically connected Bakrie group. And it would like to pursue more of these opportunities in Indonesian resource companies, the sources say.

Source: Reuters