FOCUS: Govt won?t meet oil and gas target with more regulations: Analysts

By Benget Besalicto Tnb.

The government?s target of increasing the production of oil from the current 955,000 BPD to more than 1 million BPD and gas from the current 4,387.7 MMSCFD to 5,946.1 MMSCFD in 2014 is being put into question by analysts who consider the issuance of more business-unfriendly regulations have discouraged oil and gas contractors from helping realize the target.

Addressing a seminar on ?Indonesian Oil and Gas Outlook?, organized by Petromindo.Com and SwaEnergy last week, Parulian Sihotang, head of accounting division at the oil and gas upstream regulator BP Migas, said that the government has also set the targets of achieving 50 percent national operatorship, 91 percent local content, 99 percent skilled national workforce, security of domestic fuel supply and industrial feedstock, and increasing added value for sustainable development in the oil and gas sector by 2025.

Citing that the oil and gas income contributed US$19.7 billion to the state revenue or 30 percent to the total state revenue last year, down from $35.3 billion in 2008, he said that the government would only be able to reach the targets if it, among others, increase exploration and production activities in the existing fields, allow investors find new reserves by increasing the number of working areas offered in tender, boost geological, geophysical and general surveys in eastern Indonesia and deep water areas such as West Sulawesi, East Kalimantan, Papua, and Maluku, and encourage intensive communication among related governmental agencies.

But as matters stand, Suwito Anggoro, president commissioner of PT Chevron Pacific Indonesia, was less optimistic about the achievability of the targets. He based his pessimistic view on the fact that there has been a lingering sense of uncertainty among investors in the oil and gas sector.

?Instead of simplifying the (existing) regulations, the government has issued more (business-unfriendly) regulations. And it is expected to issue more regulations in the future. All the regulations have intensified legal uncertainty in the oil and gas sector,? he said.

He said the regulations already passed and having unfavorable impacts on the oil and gas sector include the Law No. 32/2009 on the Protection and Management of Environment; Law No.26/2007 on Land Use; Law No.17/2008 on Shipping which mandates the implementation of cabotage principle by 2011; Law No.41/1999 on Forestry; as well as dozens of regulations issued by regional administrations in the name of regional autonomy that have led to the problems of overlapping land sites.

The industry will be dealt another blow if the government realizes its plan of issuing a regulation that will set limits on costs recoverable by contractors, he said, adding all the regulations were issued at the time the industry is facing a natural decline of oil production by 7 to 12 percent per year due to mature field and old production facilities, and the constraints of oil and gas infrastructure.

Sammy Hamzah, vice president of the Indonesian Petroleum Association (IPA), noted that what particularly made the investors very concerned was the fact that contractual things that should be under the domain of civil law have now been put under the domain of public law. Contractors will thus risk being criminalized in case of contractual violations.

?Some matters, such as cost recovery capping, should not be regulated by a law. Just let the ministry of energy and mineral resources or BP Migas as the regulator cap the costs,? he said..

Alan Frederik Panggabean, special counsel with Widyawan and Partners, who previously worked with BP Migas as head of its legal division, noted that actually the issuance of regulations had been triggered by the wrong perceptions of the public and the parliament about the industry. ?They wrongly consider that the production decline, increase in cost recovery and shortage of gas for domestic needs are indications of mismanagement, inefficiency, foul play, corruption, and not pro-domestic market government policy. Those wrong perceptions put the government under pressure, forcing it to respond by issuing more regulations,? Alan said.

?The government must correctly identify the root causes of the problems currently facing the oil and gas sector. Jumping to conclusion that more regulations are needed will only lead to overdosed regulations and make the situation worse,? he said.

According to him, investors expect BP Migas to act as a manager of a business rather than an administrator or regulator. ?But this is understandable in a climate of when process or administrative compliance is far more important than meeting the commercial benefits of the business process.

?We?ve seen in many cases how process non-compliance or erroneous business judgments have been looked at and investigated by law enforcers in a criminal context,? he said.

He also said that the oil and gas sector cannot achieve its target without cooperation with other sectors. Joint and comprehensive problem solving, involving all stakeholders, is needed.

?In today?s environment where each sector only care for its own target, where adding regulations is the easiest way to do, where process adherence is considered more important than result attainment, a joint and comprehensive problem solving would be a big challenge,? he said. (end)

The writer is an editor of Petromindo.com. He can be contacted at besalicto@petromindo.com