Chevron tells Indonesia to take actions to attract investment
Tuesday, August 30 2005 - 05:56 AM WIB
Chevron CEO David O?Reilly, citing report from The Asia Pacific Energy Resources Center said that Indonesia would need US$60 billion in new energy sector investment through the year 2020.
?As Indonesia enters an era of declining production, rising fuel imports, and increasing fuel subsidies, attracting this level of new investment will be one of Indonesia?s greatest challenges,? O?Reilly said when addressing Indonesian Petroleum Association Convention and Exhibition in Jakarta Tuesday. ?To ensure the full flow of that investment, we suggest that all levels of government in Indonesia create a greater sense of urgency, and begin to quickly enact a few key reforms,? he said.
He said that the reforms would provide more predictability and security around investments and to demonstrate to the world?s capital market that Indonesia is serous about an open economy and sustained economic growth.
He suggested that the government should continue with its legal and regulatory process, particularly with regards to contract sanctity, which, he said, is a fundamental concern to energy companies doing business in Indonesia.
?In order to make long-term investments, energy companies must be assured that the government at all levels will honor the terms of the production sharing contracts and other agreements,? he said. He added that there are currently confusion generated by lack of uniform interpretation of laws and regulations, and a misalignment between different ministries, and between central and regional governments.
?We believe it would be helpful if Indonesia rationalized the laws and regulations in its energy sector by benchmarking them against best practices in other countries at similar development levels,? he said.
He suggested that Indonesia needs to provide more transparency and equity in its tax system. ?It should take steps to clearly define a company?s tax obligations?speed the process of reimbursement?eliminate hidden costs and arbitrary fees and make the system more accountable.? He cited an example of inconsistent tax regulations with the PSC-as well as variety of new levies and duties imposed by local government-have resulted in additional financial burden for many energy companies.
He also urged the government to moderate and eventually phase-out domestic energy subsidies as they distort the market and siphon off national economic resources that can be better used to invest in the country?s much needed infrastructure.
The next thing he recommended is for the government to take steps to streamline the regulatory process in order to accelerate project development. ?More and more today we find the successful development of energy projects depends on minimizing cycle time and ensuring that investment and operating time table are met-consistently and reliably. Administrative regimes that value speed and efficiency can have a huge positive impact on the investment climate.?
Chevron, through its Central Sumatra oil fields, producing around 50 percent of Indonesian crude output. The company had recently becoming Indonesian LNG player through acquisition of Unocal Corp, which has huge untapped gas inventory in East Kalimantan.
Indonesia has been struggling to cope with declining oil production from its peak of 1.6 million barrels per day several years ago to 1 MBPD this year, with more declines seen in the years to come due to maturing oilfields.
IPA predicted that without new investment, Indonesian oil production would be halved by 2010. President Susilo Bambang Yudhoyono when opening the conference vowed to bring Indonesia?s oil production to 1.3 MBPD in 2009. Amid decreasing oil production, the nation is faced with ever increasing domestic fuel consumption, forcing the country to become oil importer this year and the gap is seen widening in the next years.
Indonesian oil industry has been complaining for years for unfair treatment in taxation and import duties, forcing them to pay unnecessary costs and bureaucracy created by regulatory bodies such as BPMIGAS, which caused delays in projects developments.(alex)