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ndonesia’s attempt to woo investments in the oil and gas sector next year may be met with diffi - culties as the political atmosphere ahead of the 2014 general election could generate more policy uncertainties for the industry.

Indonesian Petroleum Association (IPA) president Elisabeth Proust said on Wednesday that while the organization would not comment on politics, it could not deny that the already unfavorable condition might only get worse in the coming years.

“The Constitutional Court’s ruling and the approaching election could trigger more uncertainties.

Thus, attaining new investments [next year] could be diffi cult,” said Proust on the sidelines of the 41st IPA Annual General Meeting.

The court dissolved upstream oil and gas regulator BPMigas last month after a review by politically affi liated individuals and organizations, based on an argument that the agency was “unconstitutional” and “pro-foreign interests”.

Several members of the court’s panel of judges are former politicians, including Constitutional Court chief justice Mahfud MD, who has been encouraging “nationalistic” sentiment to gain public support.

The verdict will also require the government and lawmakers to amend the 2001 Oil and Gas Law.

“Despite its signifi cant contribution to the country, the industry is still facing the public misconception that it is dominated by foreign companies, that it does not generate much for Indonesian people and the state,” said Proust, who is also the president director of the Frenchbased Total E&P Indonesie.

“As the key stakeholders of this industry, we do need to rectify this misconception that creates challenges for the development of the industry and our efforts in achieving national production targets,” she said.

Indonesia’s unfavorable policies have been blamed for the steady decline in oil output from 1.3 million barrels per day (bpd) to 900,000 last year.

Although there was an increase in the industry’s investment by 19 percent to US$14 billion last year, over 88 percent of the funds were spent on maintaining existing production and development activity, according to the IPA.

Research by the Boston Consulting Group noted that $50 billion to $70 billion of investment needed to be approved over the next three to four years if Indonesia was to meet its ongoing energy needs.

“The industry requires a better investment climate now more than ever as most of the prospective reserves are located in deep waters in eastern Indonesia,” said Proust, who will be replaced by PT Medco Energi Internasional’s president director Lukman Mahfoedz next year as the new IPA chairperson.

In response to the legal uncertainties, Lukman expected the lawmakers to accommodate the industry’s complaints and problems during the upcoming deliberation of the revised Oil and Gas Law.

“The key to attract investors is to maintain legal certainty. I hope that the dissolution of BPMigas can be the starting point to create a law that is both mature and long-term,” he said.

Zainudin Amali, the head of the working committee formed by the House of Representatives’ Commission VII on energy to formulate the revision, said that the committee would guarantee input from the industry.

However, Zainudin said that the committee would also demand input from the individuals who disbanded BPMigas in order to avoid any parties from challenging the planned new law in the future. “National interests should be prioritized, but we must face the reality that we will still need foreign investors,” he said.

Industry contributions
• Generates over 25% of total government revenue from tax and royalty payments in 2011
• Reduces the reliance on imported energy through investment in high risk exploration activity and in launching development of discovered resources • Contributes up to 7% of GDP
• Provides direct employment for over 30,000 people and indirect employment for 300,000 people
• Invests hundreds of millions of dollars annually on equipment and services
• Develops key infrastructure to deliver energy for domestic consumption

Problems in the industry
• BPMigas dissolution
• Deferral on cost recovery and suspended account
• Repatriation of export proceeds
• New Bank Indonesia regulation relating to trustee banks
• Regulation on cost recovery & taxation
• Explosives permitting