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Jakarta. The Indonesian Petroleum Association claims a new oil and gas regulation will discourage investors rather than provide an incentive for them to invest.

IPA Vice President Sammy Hamzah said the government’s efforts to provide legal certainty in the oil and gas industry was open to misinterpretation.

“I see this as a disincentive for oil and gas investors,” he told the Jakarta Globe on Tuesday.

The regulation is aimed at clearing up questions over cost recovery in the industry in the hope of boosting investment in the sector.

It includes seven new items pertaining to oil and gas extraction and also introduces a tax on contract transfers.

Sammy said that since the regulation would be legally stronger than business contracts between oil and gas companies and the government, represented by upstream oil and gas regulator BPMigas, it would effectively curb the latter’s authority to incentivize or punish companies.

Sammy said existing contracts were strong enough to give certainty to the companies.

“I think the rule of cost recovery is not necessary,” he said.

He also criticized an article in the new regulation, issued in December, that imposed a tax of 5 percent of the contract’s value on companies transferring contracts to other firms during the exploration stage.

“Indonesia suffers from weak exploration, the most risky activity in the business. How come the government imposes a tax when companies try to share their risk?” Sammy asked.

Pri Agung Rakhmanto, an energy analyst with the Reforminer Institute, believed the details of this new regulation would not help attract more investors in the oil and gas sector.