D

espite their different approaches to managing energy security, the economic teams of both presidential candidates share a similar view on the need for national companies to receive more privileges.

During a dialogue on Thursday held by the energy think tank, Indonesia Resource Studies (IRESS), economic experts from both Prabowo Subianto and Joko '€œJokowi'€ Widodo'€™s camps shared the same opinion that foreign investment was still needed to develop the high-risk oil and gas sector.

However, both said that national oil companies should be given preference, especially state-owned oil and gas giant PT Pertamina.

Former head of the dismissed upstream oil and gas regulator BPMigas, Kardaya Warnika, who is also a legislator-to-be from Prabowo'€™s Gerindra party, said the new government should, for example, enforce an oil and gas regulation that would give Pertamina priority to take over expiring oil and gas blocks from the existing contractors.

He said that a regulation had been in place since 2004, but had not been enforced, despite Pertamina not only having the technical capability but also the financial strength to take over and operate oil and gas blocks, such as the Mahakam block in East Kalimantan.

The contract for Mahakam block, which is currently operated by Total E&P Indonesia, will expire in 2017. Whether the contract with Total will be extended or terminated is currently a sensitive issue as rising nationalist sentiment has put pressure on the government to award the block to Pertamina.

Indonesian Democratic Party of Struggle (PDI-P) energy economic expert Darmawan Prasodjo, who is also set to sit as a House of Representatives member in the next term, called for empowerment of national oil companies.

Like Kardaya, Darmawan said that Pertamina, now the largest oil and gas company in the country, should be given the privilege of not only taking over the expiring oil and gas blocks but also new ones. Darmawan said that a more unified strategy involving various institutions in the sector, simplified permission process and more incentives were necessary to support the high-risk business, which in turn would help to cope with declining output.

Meanwhile, Kardaya proposed a quick-fix to make the sector give more benefits. He proposed a review of the current cost recovery system.

'€œA high risk exploration, such as in new blocks, is fit for cost recovery,'€ he said. However, he said, the cost recovery plan should no longer be applied to the oil and gas blocks where contracts had been renewed.

Currently, Indonesia applies a production sharing contract system for the oil and gas sector that lasts up to 20 years. Under the production program, contractors will receive about 15 percent from oil production and about 35 percent from gas production.

However, contractors'€™ spending for exploration and production is reimbursed by the government. Darmawan said the development of gas distribution infrastructure would be the main priority of Jokowi'€™s administration, should he win the election.

Only with the expansion of the existing pipeline networks can gas production be used to solve the energy problem, he said.