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East Kalimantan asked not to involve private firms

The Energy and Mineral Resources Ministry has called on the local administration of East Kalimantan to reconsider its plan to cooperate with private companies to participate in the ownership and operation of the Mahakam gas block, the largest gas producer in the country

Raras Cahyafitri (The Jakarta Post)
Jakarta
Wed, April 15, 2015

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East Kalimantan asked not  to involve private firms

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he Energy and Mineral Resources Ministry has called on the local administration of East Kalimantan to reconsider its plan to cooperate with private companies to participate in the ownership and operation of the Mahakam gas block, the largest gas producer in the country.

Energy and Mineral Resources Minister Sudirman Said said in Jakarta on Monday that the central government prohibited the East Kalimantan administration from cooperating with private companies to ensure that all the benefits from the operation of the gas block could be enjoyed by local people.

Sudirman said he would invite the East Kalimantan governor to discuss the issue.

'€œThere are too many non-technical elements in the Mahakam issue. If we can sit together, I think it will be easier to resolve the problem. The government seriously wants to give a place for local government to have ownership in the block,'€ the minister said.

The ministry is drafting a new regulation which will, among other things, prohibit local governments from cooperating with private companies in exercising the right to acquire ownership in oil and gas blocks.

If a local government does not have sufficient funds, it can cooperate with state-owned enterprises or the central government investment center (PIP), the minister said earlier.

The government has formally named Pertamina to operate the Mahakam block when the current contract held by Total E&P Indonesie and its partner expires in 2017. Under the current contract, Total holds a 50 percent stake in Mahakam while the other 50 percent is held by Japanese Inpex.

Pertamina is expected to start operating the block on Jan. 1, 2018. Pertamina, Total and Inpex are currently in discussions on various issues as a follow-up to the government'€™s decision, including a transition period of operatorship of the block and whether Total and Inpex will continue to be partners for Pertamina.

While the process is ongoing, Awang Faroek recently proposed the local administration'€™s interest in holding a 19 percent stake in the Mahakam block. Thus, Pertamina would be a major stakeholder with 51 percent ownership while the remaining 30 percent could be held by Total and Inpex.

The 19 percent participation is higher than current practices where local administrations can hold 10 percent. The East Kalimantan administration already has its own company, called PT Migas Mandiri Pratama, which was established to manage the administration'€™s stake in the oil and gas business.

Migas Mandiri is planning to cooperate with private investors to take over participating interests in Mahakam. The cooperation is necessary because the local administration will not be able to finance the takeover of participating interest or fund expensive investment in the Mahakam block.

'€œDon'€™t prohibit us from cooperating with investors. We have a local budget of Rp 15 trillion, but our economic growth will be stopped if we use the money for Mahakam. Due to the size, we don'€™t believe either that Pertamina or other state-owned firms will have the money,'€ Awang said.

Mahakam is currently the biggest gas-producing block in the country, with an output of around 1.6 billion cubic feet per day or more than 20 percent of the total national output of roughly 7 billion cubic feet per day. Due to its size, operating Mahakam is also expensive. Current operator Total E&P Indonesie reported that as much as $2.5 billion was spent every year for the block.

Migas Mandiri'€™s president director Hazairin Adha said his company had established an agreement with a company called PT Yudhistira Bumi Energi. According to Hazairin, Yudhistira will fund all investment needed to take over and work in Mahakam as well as bear all risks potentially emerging from its investment in the block. He added that under the current agreement, Yudhistira, which is part of the Argo Manunggal group, would receive a 70 percent share from its ownership in Mahakam.

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