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Jakarta Post

Govt to hire advisor to sort out differences on Masela development

  • Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Thu, October 8, 2015   /  05:28 pm

The Energy and Mineral Resources Ministry is planning to hire an independent consultant to resolve the intensifying differences within the government on the development of the gas-rich Masela block.

The minister has asked the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) and the oil and gas directorate general to look for an independent consultant with a world class reputation to provide professional recommendations on the development of the Masela block, according to oil and gas chief IGN Wiratmaja Puja.

'€œThe government has to be very firm on deciding upon available options because the project is huge, the gas reserves are very large and the value is massive,'€ Wiratmaja said on Wednesday.

The planned development of the Abadi field in the Masela block in the Arafura sea has been in the spotlight recently after Coordinating Maritime Affairs Minister Rizal Ramli opposed the plan to use an offshore liquefied natural gas (LNG) plant in the project.

Rizal, who used to be an outspoken activist, argued that development of Masela should involve an onshore LNG plant instead of offshore as proposed by Inpex Corporation, the block'€™s operator. Inpex was about to get approval from SKKMigas for its revised plan of development prior to Rizal'€™s comments.

According to the minister'€™s calculations, developing an onshore LNG plant in Aru island, which would be connected to the gas block with a 600-km pipeline, would be less expensive and create a greater multiplier effect in the area. The onshore scheme development would cost only between US$14.6 billion and $15 billion compared to the offshore plant'€™s cost of $19.3 billion, he claims.

However, SKKMigas disagrees, saying that an offshore floating LNG plant would require an investment of only $14.8 billion while the onshore scheme would cost more than $19 billion.

'€œIt'€™s not only about the money. If we built onshore, in a 10-year-period we would have a new Balikpapan in the area because Masela has bigger reserves than Mahakam. However, there are officials that are confused by lobbying by foreign interests and want to decide on an offshore plant,'€ Rizal said during a seminar on energy on Wednesday.

The Energy and Mineral Resources Ministry initially planned to make its decision on the Masela development plan by Oct. 10.

However, as an independent consultant has not even been appointed, the deadline is likely to be missed. Wiratmaja declined to provide a new timeline for a decision over Masela but he admitted that the process would delay the development.

Inpex currently holds a 65 percent stake in Masela with the remaining 35 percent owned by Shell. Under its revised plan of development, Inpex proposes to boost the capacity of the floating LNG plant to 7.5 million tons per annum from a previous plan of 2.5 million tons as a result of the discovery of larger reserves.

Development of Masela is important to the country as it will be a major energy source in the future. Failure to monetize the assets will lead to the country becoming the net importer of gas sooner than expected.

Rizal'€™s harsh criticism of the Masela development follows previous criticism of the government'€™s ambitious plan to build new power plants to generate 35,000 MW of additional electricity supply by 2019. On Wednesday, he continued his criticism of the Energy and Mineral Resources Ministry over its plan to revise a regulation stating that mining companies should request an extension of their contracts two years prior to the expiration of their permits. The ministry, arguing that big mining developments require longer investment calculations, wants to amend the period to 10 years.

'€œWe have abundant mineral resources so we need to formulate our strategy. The President has also clearly stated that natural resources must be used for the utmost benefit of the people. Therefore, we regret that there are officials who can be lobbied by foreign interests,'€ Rizal said.

Operational continuity is currently an issue in the mineral and coal sector, particularly for Freeport Indonesia, a subsidiary of US-based Freeport McMoRan Inc. The company'€™s contract of work is due to expire in 2021 and under the existing regulation, an extension request can only be made in 2019. However, Freeport Indonesia wishes to ensure the continuity of its operations in the country as early as possible because the company is working on a massive investment in underground mining and a copper smelter development.

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