EXCLUSIVE: Govt promises open bidding for Makassar Strait blocks

The government has promised to hold open bidding for the contracts to develop oil and gas blocks in Makassar Straits and to give no special treatment to any parties, including state oil and gas company Pertamina, during the bidding.

"The bidding will be fair, transparent and open. Pertamina has to compete with other bidders if it wants to obtain the contracts," director of exploration at the ministry Kardaya told Petromindo.Com.

Kardaya said the government realized that Pertamina was very interested in the Makassar Straits blocks but the state company, like other companies, had to participate in open bidding to gain the blocks.

The government will offer six blocks in Makassar Straits in tender, that is the Popodi, Papalang, Donggala, Taritip, Jangeru and Tanjung Aru blocks.

Makassar Straits has become a favorite area for oil and gas companies after oil and gas company PT Unocal Indonesia, a unit of American energy firm Unocal Corp, found significant hydrocarbon resources under the deep water of the straits.

"This is a star area, where people are likely to find huge hydrocarbon resources," Kardaya said.

Sources at the ministry said the world's leading oil and gas companies, known as Seven Sisters, are now eagerly eyeing concession in the area.

According to Kardaya, Pertamina once planned to offer all the area's oil and gas blocks in open bidding but it later changed its mind as it wanted to keep several blocks for itself, offering the others to oil and gas contractors in open bidding.

In the end, Pertamina even wanted to keep all the blocks for itself, Kardaya said.

"We then told Pertamina that the policy was no good and could hurt the investment climate," Kardaya said.

Pertamina has for decades handling the bidding process for oil and gas blocks but the ministry of energy and mineral resources recently notified the state company it would take over the handling of the bidding starting next year.

Kardaya said the Oil and Gas Mining Law No 44/1960 and a Cabinet decree issued in the late 1960s gave the directorate general of oil and gas the right of handling the bidding process for the oil and gas blocks in the country.

In the beginning, the tendering process was handled by the directorate general's officials, who happened to be Pertamina's officials as well. Pertamina then continued handling the bidding process, according to Kardaya.

Kardaya said the ministry and Pertamina had reached an agreement that the ministry would handle the bidding for the new contracts but as far as the contracts that are being negotiated by Pertamina with contractors, Pertamina would continue the negotiations.

Kardaya said the ministry is forming a new bidding team for the oil and gas contracts, which will include Pertamina's officials.

The tendering process to be conducted by the new team will be somewhat different from the one carried out by Pertamina.

"Under the current practice, Pertamina mixes tender with negotiation. After a tendering process, Pertamina negotiates with the winners of the bidding on the terms of the contracts.

"Under the mechanism which are going to create, there isn't any negotiation. We shall set the terms and requirements of the contracts and propose it to bidders. The winners of the bidding will be selected based on their proposal related to the terms and requirements set in the contracts," Kardaya said

Kardaya said the ministry was currently drafting the contracts.

"The terms of the contracts will be better than those in the previous contracts and will be competitive compared to the terms of contracts offered by other countries," Kardaya said, noting that Indonesia should offer incentives to compete with other countries in luring oil and gas investors.

Kardaya said aside from the Makassar Straits block, the ministry would also offer two blocks in Natuna Sea, that is the Nila and Anambas blocks; six blocks in Arafura Sea, that is the Amborip I, II , III, IV, V and VI blocks; one block in Central Kalimantan, that is the Bangkanai block; two blocks in East Kalimantan, that is the Tigau and Mentana blocks; two blocks in South Sulawesi, that is the Polewali and Enrekang blocks; and two blocks in Seram Sea, that is the Biga and Segaf blocks.

He also said the ministry would also offer 12 blocks, which had been offered by Pertamina but had not thus far attract investors. The blocks are Sabaru offshore South Sulawesi, Wowoni offshore Sulawesi; Tamuloi offshore Irian Jaya; Sabuda offshore Irian Jaya; Kaimana offshore Irian Jaya; Kayu Agung offshore South Sumatra; Manggala offshore South Sumatra; Lampung offshore in Lampung; Tapak Tuan onshore and offshore West Sumatra; Ungus onshore Riau; Bunguran in Natuna Sea. (Alex and Lia KS)