PT INDOCEMENT TUNGGAL PRAKARSA Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 30, 2006 and 2005 Expressed in rupiah, unless otherwise stated
49
23. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES continued
n. The Company has an outstanding sale and purchase of electricity agreements with PT PLN Persero PLN wherein PLN agreed to deliver electricity to the Company’s Citeureup and Cirebon
plants with connection power of 80,000 KVA150 kV and 45,000 KVA70 kV, respectively. The price of the electricity charges will be based on government regulation.
Total electricity purchased under the agreements amounted to Rp174.3 billion and Rp121.4 billion for the six months ended June 30, 2006 and 2005, respectively.
o. The Company has an outstanding agreement with the Forestry Department FD for the exploitation of raw materials for cement, construction of infrastructure and other supporting facilities over
3,733.97 hectares of forest located in Pantai - Kampung Baru, South Kalimantan. Based on the agreement, the FD agreed to grant a license to the Company to exploit the above forest area for the
above-mentioned purposes without any compensation. However, the Company is obliged to pay certain expenses in accordance with applicable regulations, to reclaim and replant the unproductive
area each year, to maintain the forest area borrowed by the Company and to develop local community livelihood. Such license is not transferable and will expire in May 2019.
p. In compliance with the mining regulations issued by the government, the Company is obliged to restore the mined area by preparing and submitting an annual restoration plan “Mining Exploitation
Plan Book” for a period of 5 years to the Mining Department. The Company has made provision for recultivation amounting to Rp12,051,941,065 and Rp9,392,819,100 as of June 30, 2006 and 2005,
respectively, which is presented as part of “Long-term Liabilities - Others” in the consolidated balance sheets.
24. DERIVATIVE INSTRUMENTS
The Company is exposed to market risks, primarily changes in currency exchange rates, and uses derivative instruments to hedge the risks in such exposures in connection with its risk management
activities. The Company does not hold or issue derivative instruments for trading purposes.
As of June 30, 2006, the Company has outstanding derivative instruments as follows: a. Cross Currency Interest Rate Swap
As described in Note 11, the Company has entered into a hedging transaction to hedge its US150 million debt to HC Finance B.V. by using the Cross Currency Interest Rate Swap CCIRS
instrument with Standard Chartered Bank, Jakarta Branch SCB, with the same period with the HC Finance B.V. loan, which is 4 years. Under the CCIRS, the Company will purchase U.S. dollars with
a notional amount of US150 million from SCB at the maturity date on March 8, 2009 with a fixed exchange rate of Rp9,358 to US1. Also, SCB will pay the Company quarterly interest at the rate of
3 Months’ LIBOR + 1.80 per annum. At the same time, the Company will pay interest to the SCB at the rate of 3 Months’ Sertifikat Bank Indonesia SBI + 1.99 per annum on the above-mentioned
notional amount using the above exchange rate. The above interest payment period is the same with the interest payment period of the HC Finance B.V. loan. As of June 30, 2006, the Company
recognized the net liabilities on the CCIRS contract at market value of Rp46,687,776,300, which is presented as “Long-term Derivatives Liabilities - Net” in the 2006 consolidated balance sheet.
The CCIRS instrument can not be designated as a hedge for accounting purposes and accordingly, the reduction in the fair value of the CCIRS amounting to Rp130,859,284,410 were recorded as part
of “Foreign Exchange Gain Loss - Net” presented in the six months ended June 30, 2006 consolidated statement of income.
PT INDOCEMENT TUNGGAL PRAKARSA Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 30, 2006 and 2005 Expressed in rupiah, unless otherwise stated
50
24. DERIVATIVE INSTRUMENTS continued
