Indonesia has received a host of compliments from the US on its dominant role in the ASEAN region, especially after the shuttle diplomacy conducted by Foreign Minister Marty Natalegawa was successful in persuading the 10 members of ASEAN to approve the six principles on the South China Sea, including the implementation of the Code of Conduct (CoC) declaration to overcome conflict in the South China Sea zone without force.
Indonesia’s success at the regional level should not make the nation forget that bilaterally, Indonesia still has chronic territorial problems with neighboring countries, particularly Malaysia.
Indonesia badly needs speedy settlement of territorial issues to cover its scarcity of resources, notably depleting oil and gas reserves, followed by increasing oil/gas trade deficits.
One of the territories being disputed with Malaysia and which bears high potential for oil/gas exploitation is Ambalat in East Kalimantan.
Indonesia’s superiority in ASEAN should be coupled with the diplomatic courage to face neighboring countries in settling bilateral issues. While Indonesia enjoyed praise from the US, the government of the Philippines openly offered three oil/gas exploration contracts in the disputed South China Sea territory in Palawan Island’s offshore area.
Although two of the three exploration blocks were in dispute, Philippine Deputy Energy Minister Jose Layug claimed all of them were within the full sovereign territory of the Philippines.
Jose Layug was seemingly brushing aside the dispute with China as a potential stumbling block to the oil/gas contracts being proposed. The Philippines is known to have active disputes with China in some South China Sea locations like Reed Bank, Spratly and Beting Scarborough.
The Philippines’ “superior” stance is different from Indonesia’s “inferior” attitude. With the International Tribunal’s decision favoring Malaysia in the dispute over Sipadan and Ligitan Islands in 2002, Malaysia promptly strengthened its claim to part of the Ambalat Block by promising oil/gas reserves as its property.
In the face of Malaysia’s claim, often accompanied by military provocation, Indonesia has in fact carried out more “propagandist” strategies. One of the strategies is to present a more “symbols of state sovereignty” that are more permanent and active in disputed zones.
Many circles believe the defeat of Indonesia in the Sipadan-Ligitan case was due to a very “naïve” attitude toward the status quo, whereas Malaysia was quietly very active in mobilizing forces and resources so that the world and the International Tribunal saw Malaysia’s claim as more legitimate than Indonesia’s. As a result, Indonesia was seen as weak in the use of propagandistic sovereignty symbols in the disputed territories as concrete displays for the outside world.
One of Indonesia’s sovereignty symbols in disputed areas is the appearance of oil/gas block management through production sharing contracts (PSC).
This strategy was once implemented in Ambalat, but regrettably, Indonesia’s experience in Ambalat found it hard to expect foreign multinational companies to serve as “envoys of the national flag” by undertaking contracts in disputed zones.
The presence of foreign firms proved to be less effective in representing symbols of state sovereignty in border regions and disputed territories.
A major US oil company was trusted to be present in Ambalat through a PSC, but from the signing of its contract in 2004 to its “forced” termination, the company was reluctant to undertake oil prospecting operations in the East Ambalat Block based on the contract.
The contract committed the company to carry out seismic surveys and drill exploration wells until December 2010, but for over six years, it did not execute its contract obligations because it was thwarted by the bilateral dispute already underway before signing the contract.
The opportunistic approach of multinational companies is obviously unsupportive of Indonesia’s policy to raise symbols of state sovereignty in disputed zones, and creates the potential to make room for neighboring countries to assume a more favorable diplomatic position.
The presence of foreign firms in border regions has more often produced ironic results. One such case happened in Ambalat.
In 1999, a large multinational company from Holland was trusted to sign a PSC in Ambalat in hopes of being able to guard the Indonesian flag in the zone.
After selling the concession to an Italian company in 2001, ironically the Dutch giant company in 2005 again returned to the same block in Ambalat displaying the Malaysian flag, as if degrading Indonesia’s sovereignty in Ambalat.
Indonesia was indeed enraged at the time, with the Energy and Mineral Resources Ministry stating that the Dutch company had utilized Ambalat Block oil/gas data without the permission of the Indonesian government (March 2005).
The director general of international laws and agreements at the Foreign Ministry, also said Indonesia would take “tough” actions against whatever activities were executed in Indonesian waters. Fortunately, though, the Dutch multinational was helped by the “forgetful” nature of Indonesians and it later reentered, enjoying a warm welcome in the name of investment.
Multinational companies thus easily act as “jumping fleas” in disputed border areas. With data obtained from Indonesia, they come back to the same block by carrying a neighbor’s flag.
So is the original character of multinationals, which unsurprisingly makes the Malaysian government inclined to give prominence to its “state-owned company” in a conflict zone as a shield and symbol of Malaysian sovereignty.
Later, Ambalat became a disputed territory because it was believed to bear large oil/gas resources. Andang Bachtiar, director of Exploration Think Tank Indonesia (ETTI), once indicated Ambalat was estimated to have potential oil reserves of up to 1 billion barrels plus potential natural gas of around 12.5 trillion cubic feet.
Based on previous experience, it is very naïve for the government to leave oil/gas management in disputed territories fully to multinational companies, and it is wiser for the state to leave natural resources management to “national capacity”, in the form of assignments or normal business entities, serving simultaneously as envoys of the nation and symbols of Indonesian sovereignty in border regions, particularly in Ambalat.
Who can guarantee that multinationals firmly abide by contract commitments and acting also as envoys to fly the red-and-white in disputed zones? Who can guarantee that foreign companies will not become “jumping fleas” carrying national oil/gas secrets to rivals or neighboring countries?
Who can guarantee that multinationals have no conflict of interests as they generally own business chains with neighboring countries in other projects?
In border zones, Indonesia should field such “national capacity”, in the form of private companies and primarily state-owned enterprises (BUMN) really oriented to state interests, free from the influence of intervention by a group of economic rent and political rent seekers.
Partiality and intervention by the state has been proven to lead national capacity to grow, such as in Malaysia with Petronas, Brazil with Petrobras, China with Petrochina, Venezuela with PDVSA, and so forth.
Without the state taking sides and intervening, it is difficult to fly the colors of national corporations all over the world, which is also the case in Indonesia. Especially in border areas and disputed zones, it is proper for the government to offer various facilities and incentives to national companies, private firms as well as BUMN, from fiscal and tax incentives to adequate armed Marine escorts to guard them against Malaysian patrols.
As for the defense of its sovereignty and oil/gas resources in the South China Sea, the Philippines was able to adopt a superior stance in the face of a giant nation. Why should Indonesia in Ambalat be inferior and lack self-confidence in facing Malaysia?
A superior approach at the level of ASEAN by no means implies that Indonesia should become inferior at the bilateral level.
The writer is an expert staff member at BPMigas.
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