Indonesia may no longer be the powerhouse in the oil and gas industry that it once was, but the government believes Indonesia still has great potential in the sector but requires a better investment climate in order to generate more revenue and attract more money.
Southeast Asia’s most populous country was dropped from OPEC in 2008 after a few years of importing more oil than it produced. Even as a net importer, the industry still accounted for a large chunk of state revenue, with last year’s amount at around $35 billion.
The industry has been hit by multiple challenges in the past couple years, notably regarding legal uncertainties and the high cost of bureaucracy. Indonesia must also deal with its rapidly depleting oil and gas reserves, while consumption continues to rise alongside strong economic growth.
President Susilo Bambang Yudhoyono, speaking at the opening of the Indonesian Petroleum Association convention on Wednesday, acknowledged the challenging situation of the industry and made promises that the government will try ameliorate the situation
“Investment in the oil and gas sector is a long-term commitment that requires clarity, consistency and legal certainty. An ongoing effort to maintain and improve the investment climate is an absolute priority for the government,” he said.
The president added that he has formed a team, composed of of the Coordinating Minister for Economic Affairs, the Energy and Mineral Resources Minister and the chairman of the Investment Coordinating Board (BKPM), to streamline the bureaucracy and formulate the right incentives that will drive the future growth of the industry.
“We are optimistic that the oil and gas sector in Indonesia is still a promising business,” the president added.
Lukman Mahfoedz, the chairman of IPA, said that the president has sent a strong signal that attempts to improve the industry are underway. However, Lukman said the government must acknowledge that Indonesia is losing ground to its regional peers in terms of investment attractiveness.
“The cost of producing oil and gas in Indonesia is high, which in turn could lead businesses to turn to other places to make their investment,” he added.
Victor Hsum, the vice president of IHS Energy Insight, said the biggest problem hindering foreign investment in the oil and gas sector is the fuel subsidy issue.
“Subsidizing fuel sends a message that the government is encouraging excessive energy consumption and thus makes Indonesia less attractive for private investors.”
He said private investors want “progress in starting to reduce fuel subsidies.”
M. Chatib Basri, head of the BKPM, voiced a more realistic approach in the government’s undertaking, suggesting improvement can not be made overnight.
Citing an example of the high prevalence of corruption in Indonesia, Chatib said that a lot of improvements can still be made without having to entangle in the tedious and corrupt bureaucracy. “Introducing an online tracking system at BKPM would not require approval from the Parliament, so we did it first,” he added.