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Jakarta Post

Diplomatic confusion, energy policy

After the furor over bugging, the government has lodged a protest against Australia for repeated territorial violations by the Australian Navy

Eddy Purwanto (The Jakarta Post)
Jakarta
Wed, May 21, 2014

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Diplomatic confusion, energy policy

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fter the furor over bugging, the government has lodged a protest against Australia for repeated territorial violations by the Australian Navy. The apology offered by Australian Immigration Minister Scott Morrison was seen as insufficient and Indonesia demanded official clarification and the guarantee that the territorial violations would not recur.

It seems the diplomatic confusion will linger while the joint search for Malaysia Airlines Flight MH370, believed to have crashed in the Indian Ocean, temporarily halts dialogue.

Concurrently, Australia'€™s closest neighbor and former province of Indonesia, Timor Leste, is also at odds with Australia over tapping and espionage in connection with the oil and gas accord, the Certain Maritime Arrangements in Timor Sea (CMATS), which was signed in 2006.

However, unlike Indonesia, Timor Leste more confidently turned to arbitration through the International Court of Justice (ICJ) in The Hague, the Netherlands.

The agreement, signed by then Australian foreign minister Alexander Downer and his Timor Leste counterpart, Jose Ramos Horta, was originally slated to be effective from 2014, but with the confession of a former Australian intelligence agent, Dili accused Canberra of having bugged and spied on its cabinet office during the process of negotiation in 2004. Dili wants the agreement with Canberra to be
annulled by law, claiming to have been put at a disadvantage after signing the accord at a fragile and delicate moment, when Timor Leste was beginning to grow into a sovereign state.

Pursuant to the agreement both countries will share production at the ratio of 50:50 from the oil and gas field of Greater Sunrise, not far from the Bayu Undan field once under Indonesia-Australia joint management based on the Timor Gap treaty. Greater Sunrise is estimated to contain oil and gas worth US$40-50 billion.

Following the separation of Timor Leste from Indonesia, the historic Timor Gap treaty between Indonesia and Australia signed on Dec.11, 1989 for the joint management of oil and gas resources in the shared-zone, including the giant Bayu Undan oil field, was automatically discontinued, which is indeed ironic.

Timor Leste, while entering the age of 12, was reportedly still one of the world'€™s poorest countries. But unlike Indonesia with its far more established position, Timor Leste managed to set up its permanent Petroleum Fund.

In early 2014 the oil fund accumulation had already reached $14.6 billion, which practically only came from the Bayu Undan field, the historic legacy of the Indonesia-Australia Timor Gap treaty.

The state budget of Timor Leste for 2014 will utilize $632 million of the Petroleum Fund, but with additional oil and gas production the oil fund is expected to keep increasing so that the level of public welfare in Timor Leste will increase, particularly after the settlement of the CMATS dispute with Australia through international arbitration.

By issuing Law No. 9/2005, the Timor Leste government formed an oil and gas fund raising institution known as the Petroleum Fund of Timor-Leste. It has the main aim of managing non-renewable oil and gas resources so as to bring about maximum benefit for the welfare of the Timor Leste population, by spending the funds for the good of its present as well as future generations.

The agency in charge of managing the fund, the Timor Leste Banking and Payment Authority (BPA), which is controlled by the Finance and Planning Ministry, is also responsible for investment and risk management to develop the petroleum fund through various investment portfolios and strategies both at home and abroad.

It'€™s certainly unfair to compare Indonesia, a country with a population of 247 million, with Timor Leste, which only has 1.2 million people. Indonesia as a big and densely populated country needs a hefty state budget, which gives the authorities reason to spend the entire revenue from the oil and gas sector in the same year, without setting aside part of it for a
petroleum fund designed for future generations.

Basically non-renewable oil and gas resources belong to present and future generations of the country, with the obligation for the present generation to extend the sustainability of oil and gas for a maximum period of time.

Oil and gas as a pillar of energy resilience and revenue of the state require a petroleum fund institution as a perpetual fund, which handles the Oil and Gas Investment Center (PIM) as one of its functions. The petroleum fund should be managed by an independent legal entity under a legal umbrella, including the Oil and Gas Law.

The political year of 2014 is the right moment for the House of Representatives to induce the birth of the petroleum fund through a revision of the Law No. 22/2001 on Oil and Gas.

The post-2014 period is the time for the new government to build the nation'€™s energy resilience, especially oil and gas, through the petroleum fund with the chief goal of maintaining the level of substitution of oil and gas reserves above the level of exploitation, mainly through large-scale exploration campaigns that should be declared a national agenda in 2014 (rather than mere national discourses). The petroleum fund through PIM should return part of its fund to the oil and gas sector, among others for the supply of complete earth data as a vital asset to draw interest in exploration activities in Indonesia.

Regrettably, the National Energy Policy (KEN-2014) approved by the House on Jan. 28 has not yet accommodated the concept of a national petroleum fund, while the National Energy Council just declared that energy (including oil and gas) was the '€œbasic asset of national development'€, which will encourage the drainage of oil and gas as non-renewable resources without any '€œcompensation'€ to lengthen the sustainability of oil and gas for future generations.

Apart from the dark page in its history, Indonesia may learn from Timor Leste, which is now also facing a diplomatic confusion with the same neighbor, Australia.

The writer is an oil and gas practitioner and former deputy at the Upstream Oil and Gas Executive Agency (BPMigas).

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