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Our overliberal policy fails oil refinery investors
The current economic slowdown is a good time for Indonesia to realign the downstream petroleum sector. We need a less liberal policy and instead, need one that compels investment in refineries.
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Light the night: Oil refinery unit VI in Balongan, Indramayu, West Java, operated by state oil and gas company Pertamina, is seen at night on Nov. 12, 2017. (JP/Jerry Adiguna)
I
ndonesia faces an enormous challenge in meeting domestic demand for petroleum in the coming years, but for some reason, the 2001 Oil and Gas Law intended to liberate the downstream petroleum sector has not led to new private refineries.
The law has attracted investors, but all have gone into the marketing and distribution sector and avoided making longterm commitments to build refineries. This overliberal policy for the downstream petroleum industry has been an utter failure.
All evidence suggests that there is a case for making it less liberal. Now, with the COVID-19 pandemic and the incoming economic recession, Indonesia should rethink its long-term policy for the sector.
The global recession has slashed the demand for oil, creating a supply glut and bringing world oil prices to US$19 a barrel in April, compared to $65 at the end of last year. April also saw a historic drop in West Texas Intermediate, trading at negative $37 per barrel.
Inevitably, Indonesia is feeling the impacts.
Demand on finished petroleum products has plummeted more than 30 percent, with aviation fuel falling hardest at around 50 percent in the second quarter.
While supply and demand find a new equilibrium, this is a good time for Indonesia to revisit the implementing guidelines for the 2001 law to attract investors to refineries.
