RI's economic rationalism

The Jakarta Post , Jakarta | Wed, 03/22/2006 8:39 AM | Opinion

The recent controversial decision by the Indonesian government to award the lead role in the operatorship of the Cepu Block Project to ExxonMobil rather than to Pertamina represents rational economic decision making at its very best. This decision is further evidence of the dawn of a new era for Indonesia in which, at least sometimes, the government acts on the basis of economic rationalism as opposed to on the basis of short-term political expediency and knee-jerk nationalist sentiment.

One can only guess at the incredible pressure that the Indonesian government must have found itself under, from all quarters, when it came to finally deciding what to do about breaking the logjam surrounding the award of the Cepu Block Project operatorship and thereby enabling this vital project to proceed.

It would have been understandable, although reprehensible (from the standpoint of rational economic decision making), if the Indonesian government had caved in to nationalist sentiment and awarded the lead role in the Cepu Block Project operatorship to Pertamina. This, surely, would have been the politically expedient thing to do, as such a decision could have confidently been expected to win the Indonesian government, at least temporarily, increased support from the electorate and from the forces of nationalism. After all, what could be better, for local vote getting purposes, than ""sticking it to the foreigners"" once again.

Instead, the Indonesian government, to its immense credit, has focused on where the long-term economic benefit of Indonesia and of the Indonesian people rests. Although it may be unpalatable for many in Indonesia to admit, it cannot be seriously doubted that ExxonMobil is, for a host of self-evident reasons, better placed than Pertamina to take the lead role in operating the immensely challenging and complex Cepu Block Project in an effective, efficient and transparent manner. This will, ultimately, generate the greatest economic return for Indonesia (as well as, of course, for ExxonMobil).

Awarding the lead role in the Cepu Block Project operatorship to ExxonMobil does not mean that Pertamina should not be given plenty of opportunity to demonstrate and improve its skills as a major oil and gas project operator.

Would it have really made sense to allow Pertamina to ""cut its teeth"" as an operator of big oil and gas projects with the Cepu Block Project when this particular project has the potential to be one of the major contributors to Indonesia's all-important GDP growth in the years ahead. This would have truly been a case of putting at risk Indonesian economic advancement just for the sake of proving, in an all-or-nothing gamble, whether or not Pertamina has the requisite level of experience and skill to operate big oil and gas projects. The risk of such a gamble not paying off was surely just too high to take.

WILLIAM A. SULLIVAN
Jakarta

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