A peace treaty signed Monday in Helsinki that ended a three-decade pro-independence insurgency in Indonesia's northwestern Aceh may power an oil-fueled economic development boom in the tsunami-wracked province.

The peace deal promises a new era of stability and security that will encourage




foreign and domestic investment in sectors including energy, said analysts, government officials and industry representatives.

"The signing of the Aceh peace deal...(will) help improve investors' confidence in Indonesia (and) mining and oil companies will have a greater degree of comfort working around the (Aceh) area," CIMB-GK Research Pte. Ltd. Vice President Song Seng Wun told Dow Jones Newswires.

U.S. oil giant Exxon Mobil Corp. (XOM) will likely expand gas and oil exploration operations in the province due to the newly minted peace agreement, Indonesia's Vice President Jusuf Kalla said recently.

"Exxon of course can (now) explore more, and if Exxon explores more, there are taxes and money for the government," Kalla said, without elaborating.

Exxon Mobil Oil Indonesia, which has operations in Aceh including gas liquefaction facilities and a 50% non-operating stake in Mobil Block A Ltd. in Lhokseumawe in northern part of the province, declined to comment on potential Aceh expansion plans.

An oil investment-powered economic boom in Aceh would help jump-start economic development in a province still recovering from the Dec. 26, 2004, earthquake and tsunami that killed 131,000 people and pulverized infrastructure.

A greater flow of oil and gas from Aceh from expanded investment in exploration and extraction activities would also reduce the government's budget-crippling reliance on foreign oil imports. Indonesia, Southeast Asia's sole Organization of Petroleum Exporting Countries member, will be a net oil importer in 2005, Coordinating Minister for the Economy Aburizal Bakrie said last week.

Medco Energi Eyes Aceh Ops

Indonesia's rupiah hit a 41-month low of IDR9,925 to the U.S. currency early Tuesday due to dollar purchases by oil importers to fund imports while global crude oil prices hover around the $65-a-barrel mark. Soaring global oil prices increase the burden of government fuel price subsidies, which drained state coffers of $7.4 billion, or 3% of gross domestic product, in 2004.

The end of hostilities between Indonesian military and pro-Independence Free Aceh Movement, or GAM, forces has already prompted Indonesia's Medco Energi International (MEDC.JK) to consider investment stakes in Aceh.

"Aceh province geologically is a good place for the gas and oil industry," Medco's Chief Executive Officer Hilmi Panigoro told Dow Jones Newswires recently.

"Medco had observed that the peace deal would take place, so we are interested in bidding for a 50% stake owned by Exxon in Mobil's Block A field," Panigoro said.

Exxon Mobil Oil Indonesia said last week that the firm was "soliciting offers" from firms on Exxon's Block A stake, without elaborating.

But investor concerns about Indonesia's regulatory environment and perceptions of an unpredictable judiciary will continue to hamper foreign investor participation in the oil sector in Aceh and elsewhere in the country, said Kurt Barrow, head of the Singapore office of Houston-based energy consultancy Purvin & Gertz Inc.

"(Civil conflict) isn't the only aspect to Indonesia that's retarding upstream oil and gas investment," Barrow said.

"There's increased uncertainty about the rules of the game and who exactly is the referee."

Aceh Desperately Needs Private Investment

Aceh's in desperate need of private investment to make up for donor shortfalls in funding to assist the recovery of the province's private sector.

"(Investment) is very important because when it comes to rehabilitation and reconstruction... What's also very important is the sustainability of the economy," said Kuntoro Mangkusubroto, head of Aceh's official Rehabilitation and Reconstruction Agency.

"Otherwise people will just rely on us to support them for their livelihood."

The government has tasked Kuntoro's agency with disbursing $7 billion in donor funds for the province's post-tsunami reconstruction.

World Bank data indicate the tsunami inflicted losses of $1.2 billion on Aceh's private sector, compared to an official Aceh reconstruction master plan that's allocated only $380 million to help revive private business operations, said the International Finance Corp.'s country manager, German Vegarra. The IFC is the World Bank's private sector lending arm.

Vegarra said Aceh's agricultural sector, particularly coffee and palm oil plantations, offers "great potential" to private investors.

"We really have to come up with some sustainable industries," he said.