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View all search resultsGovernment must respond quickly to problems facing contractors
The Indonesian Petroleum Association (IPA) will hold its annual convention and exhibition next week, with investment the central theme
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T
he Indonesian Petroleum Association (IPA) will hold its annual convention and exhibition next week, with investment the central theme. Jakarta-based energy sector think thank Reforminer Institute executive director Pri Agung Rakhmanto spoke with The Jakarta Post's Sudibyo M. Wiradji about issues at hand. The following are excerpts of the interview.
Question: IPA will hold its 37th Convention and Exhibition next week. What is your view on the event?
Answer: IPA, whose members include local and foreign oil and gas companies, has been a key player in the national oil and gas industry development. The association provides a forum for members to exchange knowledge, ideas and experience about the industry. They use the forum to convey problems impeding production and investment. This year's theme is, Promoting Investment in a Challenging Environment.
The word challenging reflects the association's concerns about the investment climate in Indonesia, especially in the oil and gas sector '¦ It is used to show uncertainties facing contractors and future investors in Indonesia. Uncertainties cover two aspects; legal umbrella and operation. In terms of the legal aspect, many changes have taken place, such as the annulment of several articles in the oil and gas law following the disbandment of the regulator, BPMigas, by the Constitutional Court last year and its replacement by the SKKMigas (the interim upstream oil and gas regulatory task force).
SKKMigas was formed based on a presidential decree, which means that it can be disbanded by the president at anytime, which has created confusion among contractors.
Government Regulation No. 79/2010, issued in December 2010, contravenes previous and higher laws. Consequently, in terms of law, it is 'crippled'. Amid the uncertainties exploration projects underway are small-scale. Contractors and future investors must wait and see the attitude toward big reserve exploration.
With respect to operations, contractors face uncertainties resulting from overlapping regulations and the difficulty in land acquittal, which hampers production. If contractors cannot acquit the land, how can they start production? These issues have been raised frequently, as well as at previous IPA forums, but the government is slow in responding to them. The government seems to have no sense of crisis in this regard. The decline in production and dwindling reserves started 15 years ago. By a hydrocarbon life cycle, new reserves are found every six years. But to date, no big reserves have been discovered because of the uncertainties and easily changeable regulations.
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'I think the emergency solution is expediting the revision of the 2001 Oil and Gas Law. The revision should comply with the Constitutional Court so that it is not easily changed and avoids possible lawsuits,'
So, I think the emergency solution is expediting the revision of the 2001 Oil and Gas Law. The revision should comply with the Constitutional Court so that it is not easily changed and avoids possible lawsuits.
But the government seems to be upbeat about an increase in investment in the oil and gas sector.
From the government's perspective, investment in oil and gas has increased. The increase in investment was due to rising production and development costs in maintaining Indonesia's aging wells. I think it has nothing to do with the country's improving investment climate in the oil and gas industry. The maintenance cost for old oil wells are extremely high nowadays. Contractors have no other option than to sustain their existing wells.
The government could only claim that the sector's climate improved if the portion of funding allocated for exploration comprised between 20 percent and 25 percent of the total investment.
What about the issue of nationalistic sentiment raised by certain groups in the oil and gas sector?
Nationalism in oil and gas does not constitute an issue. The government has no clear strategy to develop the oil and gas sector, which has led to local and foreign companies being put in a position of confronting each other. Actually, there is no problem with local and foreign companies because both can cooperate to boost the country's oil and gas production.
The government has decided to slash the tax obligations of petroleum companies in a bid to boost oil production at a time of dwindling reserves. Will the incentive have a significant impact?
It is an old issue pertaining to the problematic oil and gas law. Before it was issued, contractors were exempted from the tax obligations. However, since its issuance in 2001, the government issues a new regulation or policy every year. It is business as usual. The proof is the continuous decline in production and dwindling reserves. This has been going on for 15 years.
And what are the advantages of the IPA Convention and Exhibition?
Well, it depends on the government. IPA serves as a forum through which oil and gas companies and the government engage, communicating the existing problems impeding production and investment. This should be followed up by a concrete policy because otherwise, it will continue to be like this [with little change] year after year.
What do you expect from the IPA Convention and Exhibition?
Just one hope 'the government should respond to complaints voiced by contractors; regulations in conflict with signed contracts, overlapping regulations that hamper production, frequent delay in contract extension and the absence of a legal umbrella endorsed by the House of Representatives.
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'The proof is the continuous decline in production and dwindling reserves. This has been going on for 15 years,'
