Indonesian Govt. Offers Alternatives for Concessions

The government has offered a more flexible system for investors to be granted oil and gas concessions in the country as part of its bid to revive the investment climate in the sector.

Iin Arifin Takhyan, director general of oil and gas at the Ministry of Energy and Mineral Resources said the government had provided two alternative ways for investors to get oil and gas blocks apart from the normal bidding rounds.

"We want to make easier procedures for investors interested in oil and gas concessions," Iin said over the weekend.

Aside from the usual bidding round, the government will make oil and gas blocks that failed to attract bidders in past bidding, available to any interested investor.

"If there is a company interested in a certain block, it can submit proposal. The government will award the block if they meet certain requirements," Iin said. To maintain transparency, the government will also offer the block eyed by the company in question to other companies through the media.

"We will give one month to invite other interested firms. If no companies submit their proposal, the award goes directly to the first company that submitted the proposal," he added.

The block will be open for bidding if there are other firms voicing an interest, Iin said. Currently, a total of 16 oil and gas blocks remain in the government's hands becaue they did not attract bidders during a regularly scheduled auction. The government will still make the blocks available for interested investors.

Three companies have voiced their interest in three oil and gas blocks, he said. Companies now can also propose to get oil and gas blocks of their interest after they conduct a study of their own, Iin added.

Iin said the company must submit proposals of their working commitment program as well as the result of their studies.

According to Iin, there are five companies that have submitted proposals on five oil and gas blocks apart from the ones offered in the bidding round.

Iin brushed aside speculation that the steps meant that the government was selling off the country's resources all too easily.

"We will choose companies that meet the requirements both financially and technologically to run the oil and gas blocks," he stressed.

Iin said the steps are expected to boost development of new hydrocarbon resources to maintain production sustainability amid an ongoing decrease in the country's oil and gas output.

Oil and gas production in Indonesia continues to drop as the investment climate becomes unfavorable.

A statistical report from the Ministry of Energy and Mineral resources showed that the country's oil production steadily declined from 1.6 million barrels per day (bpd) in 1995 to 1.4 million bpd in 2000. It dipped down to 1.34 million bpd in 2001.

Natural gas production is also down from 3 trillion standard cubic feet (tcf) in 1995 to 2.9 tcf in 2000 and 2.8 tcf in 2001.

The number of production sharing contracts awarded to foreign companies also steadily declined from 29 in 1997 to 22 in 1998 and to four in 1999. It slightly up to seven in 2000 and nine in 2001.

Last year, no contracts were signed except for the extension of the Coastal Plains Pekanbaru, formerly operated by PT Caltex Pacific Indonesia, for the new operator, a joint venture of state oil and gas company Pertamina and the firm set up by the Riau provincial administration.

Energy analyst Kurtubi believed the strategy would help to lure in more investors into the sector. However, he criticized the government for failing to address the real problems for oil and gas investors.

According to Kurtubi, the new oil and gas law which liberalizes the sector tends to lengthen the process to carry out upstream activities which is a serious drawback for investors.

The Oil and Gas Law No. 22/2001 has lifted the decades-long monopoly held by Pertamina over the sector, turning it into a a common company equal to all contractors in the sector.

The law assigns two separate bodies to regulate and supervise the upstream and downstream activities.

The Oil and Gas Implementing Body (BP Migas) now holds the authority to sign oil and gas contracts with investors as well as appoint sellers to sell government shares in contractors' oil and gas production.

Kurtubi said, under the law, investors must ask for approval from the Ministry of Energy and Mineral Resources to participate in the tender of new oil and gas blocks.

But, once they win the tender, they have to sign contracts with BP Migas. Should they find new resources, they still have to go to the ministry to get approval for exploitation.

"There are too many doors, which confuse investors. This needs to be addressed by the government," he asserted.