OPEC - Indonesia.

The following is a review of the main developments and policy changes among OPEC's member-countries which may have an impact on the market during 2007:

Indonesia: Before OPEC's Dec. 14 meeting, Indonesia had stated that it would not be in a position to cut its crude oil output because it has been producing below its quota. Its current oil output is below 900,000 b/d, from to a quota of 1.451m b/d decided in July 2005. Based on its September output, Indonesia was given an OPEC production limit of 861,000 b/d, but Jakarta did not comply with that.

Indonesia missed its production target of 1.050m b/d of crude oil and condensate as a government official on Sept. 21 was quoted as saying average output had stood only at 1.032m b/d during the first eight months of the year. "This is due to the natural decline in our crude production", said Achmad Lutfie, planning director at the official upstream oil and gas regulating body BP Migas, without elaborating.

Indonesia's crude oil output has been declining steadily in recent years due to a lack of exploration activity. Investors were reluctant to look for oil and gas in the country mainly due to legal uncertainties, such as taxes imposed on oil companies during exploration. Indonesia is the only Asian member of the Organization of Petroleum Exporting Countries who is a net oil importer.

Indonesian President Susilo Bambang Yudhoyono on Aug. 16 unveiled plans for a major increase in public spending in 2007 in a bid to inject government-funded life into the country's flagging economy. Yudhoyono used his annual budget speech ahead of the Aug. 17 Independence Day holiday to promise a 16% rise in central government spending in 2007 with 4m civil servants and the poor to be the main beneficiaries.

The former general pledged higher spending on education, health, and infrastructure as well as a 13.8% increase in Jakarta's grants to provincial governments. The result, he said, would be economic growth of 6.3% in 2007, up from 5.2% in the second quarter. But analysts questioned Jakarta's ability to deliver the higher expenditure. It is needed because Indonesia is struggling to attract the fresh foreign direct investment it needs in the face of competition from Asian neighbours such as China, India and Vietnam.

"The problem is not with the budget per se. The problem is the implementation", said Fauzi Ichsan, chief economist in Jakarta for Standard Chartered, adding: "If the government can implement its fiscal policy - spend what it wants to spend - and implement its infrastructure programme then that's fine, higher growth can be expected". Historically, he said, the "problem with fiscal policy in Indonesia is under-spending, huge under-spending". In the first six months of this year, Ichsan said, less than 23% had been disbursed.

Sri Mulyani Indrawati, Indonesia's finance minister, said the government hoped policy reform packages Jakarta unveiled this year would help stimulate new direct investment in the year to come. There are few signs of that so far. GDP figures showed investment, as measured by fixed capital formation, actually fell almost 1% year-on-year in the second quarter. The government's budget for next year includes large increases across a number of areas.

Indonesia's civil servants will receive a 23% rise in their salaries as part of government efforts to fight corruption and reform a bloated bureaucracy, two of the biggest legacies of the 32-year rule of former dictator Suharto. Besides promising increases in spending on education and health Yudhoyono pledged to extend a cash-grant programme for the poor. The payment scheme was introduced in 2005 to ease the impact on the poor of his administration's decision to more than double government-set fuel prices to cut subsidies.

Yudhoyono said Jakarta would retain significant subsidies in its 2007 budget. Indonesia's inflation remains above 15% despite having fallen from a high last year of almost 19% while the central bank's benchmark interest rate, though also falling, remains in the double digits. His government was to spend Rp68,600 bn ($7.5 bn) on fuel subsidies next year, Yudhoyono said, or roughly a third more than it planned to spend on education (Rp51,300bn) even after an 18.5% increase in that budget.

Indonesia's Vice President Jusuf Kalla on Oct. 20 reiterated the government's position that ExxonMobil's contract to develop the Natuna D-Alpha natural gas block had expired, but said the major was welcome to negotiate a new agreement. The Indonesian government will give Exxon "priority" over other firms in negotiating a new PSC for Natuna, Kalla said.

Kalla's comments indicated the Indonesian government and Exxon had yet resolved a disagreement over the status of the contract to tap Natuna's estimated 46 TCF of recoverable gas reserves. Earlier in October, both Minister of Energy and Mineral Resources Purnomo Yusgiantoro and Kardaya Warnika, chairman of the official upstream oil and gas regulator BP Migas, told reporters that Exxon's Natuna contract had expired or been terminated.

The Natuna spat has unsettling echoes of the lengthy disagreement between Exxon Mobil and state-owned Pertamina over a joint operating contract to tap the massive Cepu oil block in East Java. Before its resolution in March, the dispute became a symbol among foreign investors and analysts of the perils of contract enforcement in Indonesia.

In December, ExxonMobil Indonesia's CEO Peter J. Coleman told reporters the company was proceeding with a "four-year plan" to deliver natural gas from the Natuna D-Alpha block to foreign buyers by 2014