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As more people and more vehicles push up demand for energy in Indonesia, the government is under pressure to crank up the output of crude oil and gas.

But first it will have to win over investors - including foreign firms with deep pockets - to explore new sites.

These investors complain of a lack of reliable data on oil and gas reserves, frequent changes to laws, and conflicting legal interpretations between the central and local governments as barriers to investment.

All that makes their 15 per cent share of the profit split with the government unattractive, they say.

Major players in Indonesia include Chevron from the United States and French oil giant Total. Indonesia's state-owned firm Pertamina accounts for around 15 per cent of crude oil production, and owns the eight refineries supplying petrol to the domestic market.

Energy analyst Kuturbi, who like many Indonesians goes by one name, said current oil prices of around US$100 (S$123) per barrel should be an incentive for companies to take part in oil exploration.

'But since there is low interest, this signals that something is wrong with how the government is managing investment in oil exploration,' said Dr Kuturbi, who is from the Centre for Petroleum and Energy Economics Studies in Jakarta.

Last year, only 21 exploration contracts between investors and the government were signed, compared to 34 in 2008. Two weeks ago, the government offered 20 oil and gas blocks in the first round of tenders this year, and said it would consider giving investors a bigger cut of profits and more favorable tax rates if they explored less accessible sites, such as those in eastern Indonesia.

The director-general of oil and gas at the Energy and Minerals Ministry, Ms Evita Legowo, said the ministry would try to find money for more detailed geological studies.

'We will try for this in the 2012 fiscal year. We haven't got the budget for it now... and some investors are waiting to see if we amend the oil and gas law before they decide whether or not to invest,' she said earlier this week.

Kuturbi pointed out that around 70 per cent of exploration contracts signed between 2002 and 2008 experienced delays in starting work, further depressing oil production. Oil and gas regulator BP Migas said these were due to problems with land acquisition to drill wells and poor project management.

Crude oil production - at around 1.5 million barrels per day in the 1990s - has in the past few years dropped to between 900,000 and 960,000 barrels per day, below the government's target of around 970,000 barrels. Gas production has been going up but Indonesia exports gas to countries such as Singapore, keeping only half of its output for domestic use by the state electricity company and industries.

The government also aims to raise renewable energy - such as geothermal and biomass sources - to 17 per cent of Indonesia's energy mix by 2025.

Energy analyst Pri Agung Rakhmanto, from the Jakarta-based Reforminer Institute, said the government would have to go back to the drawing board and ensure there was a decent investment climate for energy.

'It cannot just be business as usual,' he said. 'Otherwise, we will not be able to meet our own energy needs in future.'



Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 021 2553 5055