Indonesia Needs Foreign Oil Firms: Minister

By webadmin on 12:03 pm Nov 20, 2012
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Wahyudi Soeriaatmadja – Straits Times

Jakarta. Foreign oil and gas companies must be able to operate comfortably in Indonesia and make reasonable profits, or they will go elsewhere, Indonesia’s Energy and Mineral Resources Minister Jero Wacik said on Monday.

His comments were aimed at assuaging investors’ concerns about creeping nationalism over Indonesia’s resources, and came in the wake of last week’s shock ruling on how oil and gas rights are handed out.

Last week, the Constitutional Court’s ruling disbanded the country’s upstream oil and gas agency BPMigas, on grounds it benefited foreign oil companies more than Indonesian citizens.

While the government has said existing contracts issued by BPMigas to all 303 oil and gas firms in Indonesia will be honored, Jero seems to be aware of the potential damage the episode could have on the investment climate.

He said Indonesia still needs foreign capital at this stage as businesses like oil exploration are costly. He also pledged more help for local oil and gas companies.

Oil and gas firms operating in Indonesia have committed to spending US$15 billion this year and $17 billion next year to explore and drill for oil.

“BPMigas has been labelled by some quarters as pro-foreigner. We will show them that we are not pro-foreigner. We will encourage and prioritize local companies to do our oil blocks. But, this does not mean we’re kicking out foreign operators. We still need them,” Jero told a gathering of BPMigas staff, who will now transfer to the energy ministry.

The Nov. 13 ruling came after a petition by 42 organizations including Muhammadiyah, Indonesia’s second largest Islamic organization, and scholars including former minister and noted economist Kwik Kian Gie and cleric Hasyim Muzadi.

The petitioners asked the Constitutional Court to review the 2001 oil and gas law, which established BPMigas, alleging it was inefficient and benefited foreigners by giving them better, more profitable oil blocks.

BPMigas goes against the Constitution, according to the ruling, which says the state should reap the most benefits from the country’s resources for the people’s welfare and BPMigas degraded state control over natural resources.

The court found BPMigas did not directly run the country’s oil and gas resources, and instead handed them to third parties, including privately owned local and foreign firms via cooperation contracts.

All of BPMigas’ functions were temporarily handed over to the energy ministry.

Jero argued the petitioners did not understand that the oil and gas business requires huge capital spending.

“You can drill 10 exploration wells, spend so much money and find oil in only one of them. You can drill so many and not find anything. This is why there are not many oil companies worldwide. This is why we see same old, same old company names,” he said.

Not so, said energy analyst Pri Agung Rakhmanto from the Jakarta-based Reforminer Institute.

“The Constitution says the state must have control over natural resources. The ruling reflects this clause,” Pri Agung told The Straits Times.

The ruling has galvanized petitioners. Muhammadiyah chairman Din Syamsuddin said over the weekend it will continue to file complaints on natural resources laws.

Said Jero: “I’ve heard they are now challenging the 2009 Coal and Mineral Resources Law. It keeps coming, like a virus which is always out there.”

Reprinted courtesy of The Straits Times