The government is looking to increase investment attractiveness in the upstream oil and gas industry by revising a number of regulations deemed as hampering the growth of business deals in the sector.

Oil and Gas Director General at the Energy and Natural Resources Ministry IGN Wiratmaja Puja said it is currently in the midst of revising the 2010 government regulation on taxation and cost recovery in the oil and gas industry, as well as planning to create a regulation on special incentives for activities in deep sea and remote areas.

Wiratmaja said he expected the moves to boost investments in the industry often bedeviled by numerous convoluted tax obligations and help increase supplies amid plummeting sources and surging domestic demand.

“We can’t do business as usual now. The sooner [the government can conclude the deliberations on the regulations], the better [our oil and gas industry will be],” he said at a press briefing on Friday.

The ministry forecasts that oil production will plummet to 550,000 barrels of oil per day (bopd) by 2020 from this year’s target of 820,000 bopd if no new discoveries are made.

The country’s oil reserves, meanwhile, dropped to 3.6 billion stock tank barrels at the end of 2015 from 3.62 billion the previous year.

The ministry’s data also show that starting next year, there will be a gap between the country’s oil supplies and demand. By 2020, the supplies are forecasted to go down to 1.8 million bopd from 2.19 million bopd in 2015, while demand could possibly increase to 2.6 million bopd from 2.19 million bopd.

There are now 113 active exploration sites, with only US$367 million invested in exploration activities in the first half of the year, out of a total investment of $5.7 billion in the oil and gas sector. The low level of exploration activities was mainly caused by the heavy tax obligation for investors from the outset of their venture, Wiratmaja said.

The government is now also considering removing all tax obligations for investors still in the exploration process, such as value-added tax and import tax. “We hope to attract investors to spend their money in exploration activities as exploration can increase our oil and gas supplies.”

Acknowledging the potentials, the government will also issue either a presidential regulation or a government regulation containing various incentives for activities in the deep sea and remote areas.

According to the ministry, there are around 3.7 billion stock tank barrels in potential reserves, mostly located in deepwater ocean basins in the eastern part of the country.

Separately, Bank Mandiri’s head of industry and regional research department Dendi Ramdani agreed that tax reform in the upstream oil and gas industry would further foster the sector.

However, he said the move to revamp legal basis was only one of many factors that contributed to the industry’s growth, pointing to the unstable crude oil prices. (mos)

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