FOCUS: The future of RI oil and mining industry after Bali bombing

By: Leo Jegho

While worries are widespread that the devastating bombings in Bali will adversely affect Indonesia's economy, government officials and industry players quickly dismissed speculations that it would also bring a big impact to the country?s strategic oil and gas, and mining industries.

?Oil and gas investment is long-term investment. I am confident that the impact of the Bali bombings on the oil and gas operations will be insignificant. Thus far, oil and gas companies are operating normally, and no expatriate workers have been evacuated or have left Indonesia,? Minister of Energy and Mineral Resources Purnomo Yusgiantoro said last week.

Obviously, Purnomo's remarks also applied on mining operations, which, like those in the oil and gas sector, are long-term businesses and involve large investments and personnel.

LNG Tangguh president director Gerry Peereboom said in an interview that the Bali attack would not seriously affect their preparations to develop the Tangguh liquefied natural gas (LNG) project in the Bird?s Head area of Papua province. He is optimistic that the Indonesian government will be able to minimize terrorist threats in the long run.

Soon after the blasts, which claimed more than 180 lives and injured some 300 people, the government intensified security at the oil and gas, energy and mining facilities across the country amid fears that they will become the next target of attacks.

Fears that facilities in the oil and gas, energy and mining sectors could become the next target of the terrorist attacks are reasonable given their strong presence of American, British, Canadian and Australian investors in the industry. The U.S. and Britain dominate the country?s oil and gas industry through their giant firms ChevronTexaco, ExxonMobil, Conoco, and BP PLC, while the country?s mining sector is controlled by PT Freeport Indonesia, a subsidiary of American firm Freeport McMoRan Copper and Gold, Anglo-Australian firm Rio Tinto, and Canadian Firm Inco.

The United States is on the front in the global war against terrorism, while the other countries mentioned above are the strong supporters of the U.S. in the crusade.

Even before the Bali attack, investment in the country?s oil and gas and mining sectors has been on the decline.

New oil and gas contracts hit a record 29 in 1997. But, the number dropped to 22 in 1998, eight in 1999 and five in 2000 amid the economic crisis, rampant social unrests and political turmoil. Last year, the number of new contracts rose to 12 as the country?s economy showed some improvement. Until September this year, only one contract has been signed, that is the contract on the Coastal Plains Pekanbaru (CPP) block. The government decided not to extend PT Caltex Pacific Indonesia?s contract on the block and transfer it to a joint venture between state oil and gas company Pertamina and the Riau province.

Analysts said the oil and gas investors were still waiting for the government to issue all necessary regulations executing the new oil and gas law issued last year. Thus far, the government has issued only a regulation on the establishment of the new upstream authority BP-Migas, while the important upstream regulation is still at the drafting stage.

Other analysts said investors are still reluctant to sign contracts with BP-Migas given a clause in the law stipulating that BP-Migas cannot bear any financial risks in implementing the contracts. This means investors cannot sue the agency for any reasons whatsoever.

Situation in the mining sector is worse. In 1997, the government signed a record 121 mining contracts, including 65 mineral resources and 57 coal contracts. In the following year, at the peak of the economic crisis, mining investors still had a strong interest in Indonesia as reflected in the signing of a total of 84 new contracts, including 72 mineral contracts and 12 coal contracts. In 1999, 22 new contracts, which were all coal contracts, were signed. But, no contracts were signed thereafter.

The mining industry has been facing a lot of troubles, including conflicts with local communities and illegal mining, since the downfall of former President Soeharto in the middle of 1998.

The decentralization program launched by the government from early 2001, which among others transfer the management of mining industry from the central government to regions, has further hurt mining investors? sentiments, as they don?t believe regional governments are capable of managing the industry given their lack of skilled human resources.

The Forestry Law of 1999, which bans open-pit mining in the protected forests, has dealt another blow to the industry as many of them, who had spent lots of money in explorations, could no longer continue their activities due to the law.

Analysts believe the Bali bombing will further worsen the already depressed sentiments of oil and mining investors.

But, Kardaya Warnika, the vice chairman of the oil and gas upstream authority BP-Migas, was still optimistic.

?I should say that we are still hopeful and are optimistic that there will be new deals in the oil and gas sector in the next couple of years,? Kardaya told Petromindo.com, noting that the following the Bali bombing, the government has taken significant steps to ensure security in the country to ease investors? fears about possible terrorists attacks in the future.

Analysts agree that Indonesia, which, before the Bali bombing, had been much criticized for its lack of interest in participating in the global fight against terrorism, could only regain investors? confidence by showing determination in fighting the crime.

They said President Megawati Soekarnoputri had taken a significant step in the direction by signing last Friday two tough decrees to investigate the Bali attacks and curb terrorist activities in Indonesia in the years to come. (Godang Sitompul, Robert Sihotang and Hans Bodega contribute to this article).