Indonesia’s investment attractiveness in the oil and gas industry may be lessened amid the wariness of business players following a recent decision by the Constitutional Court to disband the nation’s upstream oil and gas regulatory bureau, a top official has said.
Deputy Energy and Mineral Resources Minister Rudi Rubiandini said on Monday that the disbandment of the regulator, BPMigas, would likely affect the former OPEC member’s investment situation as illustrated in the annual Global Petroleum Survey for example.
Last year, Indonesia was ranked 111th out of 135 surveyed countries due to its Oil and Gas Law, which was deemed as “not appealing to investors”, poor coordination between the central government and local administrations, as well as the country’s rampant corruption. The survey, conducted by the Canada-based Fraser Institute, ranked the Southeast Asia’s largest economy 111th position out of 133 countries.
The newest ranking is expected to be published later this year or next year.
“It is not impossible [for the Indonesia’s investment level] to go down following the ruling even though the government has formed a task force under the supervision of the Energy and Mineral Resources Minister [Jero Wacik] to temporarily take over BPMigas’ old functions,” Rudi told The Jakarta Post.
“The investors will see that in Indonesia, a law can be annulled like that. They will become cautious over their contracts, which are beneath the law itself. People [the investors] will be afraid.”
The top official said the government hoped that through the implementation of a presidential decree and two ministerial decrees instructing the formation of the task force, oil and gas contractors would become convinced to carry on their business here.
The court’s decision came last Tuesday as part of their verdict granting parts of the judicial review petitioned by several organizations and individuals, ranging from former ministers to politicians, who deemed the erstwhile supervisory body “unconstitutional”.
“Since Thursday last week, two days after the verdict was issued, the activities in the oil and gas business have been getting back on track,” said Rudi, adding the estimated state loss following the two-day “vacuum” in the industry would be more than Rp 2 trillion (US$207.7 million). Separately, Jero told reporters on Monday that he was “upbeat” that investment in the oil and gas sector would continue to grow after the formation of the temporary task force.
While acknowledging that Indonesia still had several “holes” that would weigh down the investment, such as the high number of taxes that was “unappealing” for oil and gas companies, Jero maintained that Indonesia’s steady economic growth still attracted investors.
“Our economic condition is much better than other countries. I will try to assure them myself [oil and gas contractors] that everything is still under control,” he said, insisting that Indonesia needed foreign investment to expand its oil and gas sector.
Around 303 oil and gas contractors currently operate in Indonesia, with 74 of them having entered the production stage, according to the latest data from the government.
The Indonesian Chamber of Commerce and Industry’s (Kadin) chairman for oil and gas, Firlie Ganinduto, said separately that many investors might wait until a new, permanent supervisory body was formed before investing more money in the business.
“When BPMigas was formed in 2002, there was a five-year gap for the companies to adapt to the new regulation. Now, they must be prepared to adapt to a new regulation. This situation will hurt Indonesia’s investment climate,” he said.
Separately, an expert from the energy think tank ReforMiner Institute, Pri Agung Rakhmanto said the government was the one to blame for the inevitable decline of Indonesia’s investment rank amid the short-term legal uncertainty following the court’s ruling.
“The government has not been responsive even though critics have been slamming the 2001 Oil and Gas Law since 2004. Had the government been sensitive to the matter, they could have revised the law with the legislators to avoid any legal uncertainty,” he said.