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#65408 - 23 Nov 07 09:36 ANT/Existing oil and gas law not conducive for investment
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Existing oil and gas law not conducive for investment

Jakarta (Antara News) - A noted oil industry observer has criticized Indonesia`s oil and gas law as causing the country to become a permanent net oil importer as it was not conducive for investment in and discovery of new oil reserves.

Dr Kurtubi, a post-graduate economics lecturer at the University of Indonesia, said the "business-to-government" concept on which Law No 22/2001 on oil and gas was based had proven to be detrimental to the state as it had allowed cost recovery in oil and gas production activity to go out of control. The oil and gas industry was controlled only by the Energy and Mineral Resources Department and the Oil and Gas Industry Regulatory Agency (BP Migas) without the participation of the Finance Minister as the custodian of the state`s financial resources.

Speaking at a seminar on the national oil and gas industry here Wednesday, Kurtubi said investment in oil exploration in Indonesia had remained very low whereas the oil price as the main factor investment in oil had since 1999 continuously shown an upward trend.

Kurtubi also noted that the state`s share in the oil and gas yields of production-sharing contracts (with private companies) was sold through third parties - a situation that often obscured the state`s income from the contracts.

Another unfavorable condition was that disasters in oil and gas exploration activity such as blow-outs were often tackled in a very slow way and without the ability to benefit from experience.

The "adverse" opinion given by the State Audit Board on BP Migas`s financial report was an indication that the management of the state`s oil and gas wealth badly needed to be improved, he said.

Kurtubi also said the existing oil and gas law which was part of the IMF`s Letter of Intent (LOI) proved to have damaged the national oil production system and extremely reflected on the state`s interest. Yet, the world oil price level was an economic incentive for more investment in oil exploration.

According to Kurtubi, Indonesia actually still had very sizable oil and gas reserves, namely about 86.9 billion barrels of oil and about 384 tcf of gas. The decline in investment in oil and discovery of new oil fields in Indonesia was in stark contrast with developments in the oil and gas industries of other contries, OPEC as well as non-OPEC oil producing countries, especially in western Africa and Central Asia, where the industry was flourishing.

He said because there was little investment in oil and gas exploration, hardly any new reserves had been found. The rate at which new reserves were found did not match the rate at which oil and gas reserves were being exploited. Production came from old fields and dropped from about 1.5 million barrels per day in 1999 to 0.91 million barrels per day in 2007.

Before 2001 investors adopted a "wait-and-see" attitude as the House of Representatives was revising the existing oil and gas law. But under the revised law the procedures for investment in oil and gas in the country had become even longer and more bureaucratic, he said.

"Investors are burdened with taxes and levies although their operations are still at the exploration stage, all of which runs counter to the production-sharing contracts on which the cooperation with investors is based and is thus creating uncertainty," Kurtubi said.

With production dropping and domestic fuel oil consumption rising continuously, the country`s oil output was eventually no longer enough to meet the domestic need for fuel oil. This led Indonesia to become a net oil importer and would even make the country a permanent net oil importer as the government had set production in the years to come at levels far below domestic need.

"Under various existing plans, Indonesia`s oil production in 2009 has been projected at about 1.3 milion barrels per day and in 2015 at about 1.2 million barrels per day despite the knowledge that in 2007 alone the need for crude oil to make fuel oil will be 1.5 million barrels per day," he said. (*)
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#65409 - 23 Nov 07 09:57 Re: ANT/Existing oil and gas law not conducive for investment [Re: KuKuKaChu]
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