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Observing the Masela case through a historical lens
Quite recently, President Joko “Jokowi” Widodo announced that the US$15 billion Masela (Abadi LNG project) gas field and plant development in the southwestern part of Maluku province is going to proceed after being mired in a range of discussions involving the Indonesian government. President Jokowi unilaterally announced that the plan will be substantially modified to be an onshore liquefied natural gas (OLNG) plant, in contrast to the prior development plan submitted by contractors Inpex and Royal Dutch Shell. Originally, the project was planned to be equipped with a state-of-the-art floating liquefied natural gas (FLNG) facility. President Jokowi's executive order signified a decisive end to the debates over the multi-million-dollar project.
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President Jokowi unilaterally announced that the plan will be substantially modified to be an onshore liquefied natural gas (OLNG) plant, in contrast to the prior development plan submitted by contractors Inpex and Royal Dutch Shell. Originally, the project was planned to be equipped with a state-of-the-art floating liquefied natural gas (FLNG) facility. (Kompas.com/Indra Akuntono)
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uite recently, President Joko “Jokowi” Widodo announced that the US$15 billion Masela (Abadi LNG project) gas field and plant development in the southwestern part of Maluku province is going to proceed after being mired in a range of discussions involving the Indonesian government.
President Jokowi unilaterally announced that the plan will be substantially modified to be an onshore liquefied natural gas (OLNG) plant, in contrast to the prior development plan submitted by contractors Inpex and Royal Dutch Shell. Originally, the project was planned to be equipped with a state-of-the-art floating liquefied natural gas (FLNG) facility.
President Jokowi's executive order signified a decisive end to the debates over the multi-million-dollar project.
The Masela production-sharing contract (PSC) block was acquired by Japanese oil and gas company Inpex in 1998, when the company purchased 100 percent interest over the PSC. In 2000, the company discovered the Abadi Gas Field, eventually recognized as one of the largest deepwater gas projects currently being developed in Indonesia, containing 10.7 trillion cubic feet of natural gas reserves.
Inpex and fellow shareholder Royal Dutch Shell proposed a plan of development to the Special Regulatory Task Force on Oil and Gas (SKKMigas) to construct an FLNG with the capability to handle 7.5 million tons of LNG per year. Although the plan was cleared by SKKMigas and the Energy and Mineral Resources Ministry, Coordinating Maritime Affairs and Natural Resources Minister Rizal Ramli intervened in October 2015, calling for land-based construction of the mammoth LNG plants in order to promote regional economic development in the area.
If we examine the debates over the problem, it is clear that there are economic and political factors in play concerning Masela. Discussions over production costs, availability of markets, slowing demand, political interventions and ecological and environmental impacts dominated the discourse. This writer does not have the capacity to argue for or against the stances brought forward by their proponents. However, it is important for us to reflect on the past, when an intriguingly similar conundrum also happened in the Indonesian oil and gas sector.
President Jokowi's Cabinet reshuffle (and renaming) last August and how he reacted to Coordinating Minister Ramli’s intervention seem to resemble the brief removal of the Directorate General of Oil and Gas (Dirjen Migas) in 1966 during the New Order regime. Slamet Bratanata, then minister of mines, once tried to audit Permina (Pertamina’s predecessor). Migas was detached from the ministry by then-president Soeharto. Ministerial control over the lucrative industry was reestablished in 1967, after Bratanata was succeeded by Sumantri Brodjonegoro.
During the height of the 1973 oil crisis, the state-owned oil company succumbed to a huge amount of short and long-term loans. Dubbed the Pertamina Crisis, the near-default surprised almost everyone in the oil and gas business, because Pertamina was one of the world’s largest corporations at that time (it was in the list of 200 largest corporations in the world by the Far East Economic Review) and oil prices were at an all-time high.
It was eventually discovered that the company was underperforming because of excessive diversification (it managed massive projects, such as Krakatau Steel, the Batam Island development and a rice estate in South Sumatra), mismanagement and corruption and the effects of the global lending boom of the 1970s. As a result, Indonesia’s foreign debt burden increased substantially and Pertamina’s director, Ibnu Sutowo, was replaced in 1976.
Earlier this March, Coordinating Minister Ramli and Minister Said quarreled publicly in social media over the Masela project, further exposing internal discord in the Cabinet. The disunity reminds us of the schism between economic nationalists (i.e. Ibnu Sutowo) and Bappenas technocrats (Widjojo Nitisastro, et al.), which was clearly evident throughout the New Order’s economic history.
During good times, economic policy tends to be nationalistic. When the economy faced serious challenges, such as in 1975, the technocrats took over and implemented a more liberal approach to policy making.
Certainly, the oil and gas sector represents an enduring Indonesian passion to control its natural resources as it is envisioned in the Indonesian Constitution. I could not agree more with President Jokowi's and Coordinating Minister Ramli’s indefatigable calls for further contributions toward regional development. However, political disunity and policy inconsistencies over cost and capital-intensive projects may prove detrimental to Indonesia’s outlook in the eyes of foreign and domestic investors.
Excessively nationalistic policies also may send a reverberating signal to the market. As Amy Jaffe pointed out in Beyond the Resource Curse (2012), nationalistic approaches toward resource policy constrains the development of new oil and gas sources. Thus, they may lead to shortfalls.
It is also important for us to note that the Indonesian resource sector has a long-lived reputation of being inefficient (read: corrupt). We also may question the extent of domestic investors’ technological capabilities in handling future Masela-type deepwater projects.
Perhaps it would be wiser if the Jokowi administration focused more on maintaining a conducive investment climate in the face of a global economic slowdown, manage the disagreements within its policymakers (rather than proudly broadcasting them in memes), pursue better solutions for stakeholders of the Masela project and try to learn something from history.
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Norman Joshua is the 2015 Arryman Fellow at Equality Development and Globalization Studies, Buffett Institute, Northwestern University. Primarily concerned with economic and social history, his current research is on the Indonesian petroleum industry during the early New Order regime. He also writes for Majalah Loka (www.loka-majalah.com/normanjs). He can be contacted at normanjoshua2015@u.northwestern.edu.
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