Govt asked to anticipate impact of falling oil prices
Saturday, April 16 2016 - 12:13 AM WIB
Currently, exploration and production activities in the upstream sector have declined as companies recalculate their business plan. Some contractors even stop their exploration activities, especially in wells which are deemed uneconomical, return their oil and gas blocks to the government, and layoff their workers.
The slump in oil prices also has implications on state revenues. Oil and gas revenue in 2015 was only Rp 78.4 trillion, which is below the target set in the Revised 2015 State Budget of Rp 81.4 trillion. Meanwhile, the realization of oil and gas income tax (VAT) fell 43 percent from the previous year to Rp 49.7 trillion. The actual investment in oil and gas sector was only $15.9 billion, missing the government's target of $23.7 billion.
Greater implications felt by some areas whose budgets rely on revenue sharing fund (DBH) from oil and gas sector. Kutai Kartanegara, for example, which received a fund of Rp 3.2 trillion in 2014, only received a fund of Rp 700 billion in 2015. Kampar Regency also suffered a similar fate. Its revenue sharing fund fell from Rp 1.2 trillion in 2014 to Rp 400 billion in 2015.
As a result, economic activities in a number of areas have slowed down. So far, investments in oil and gas sector have created multiplier effect on other industrial activities, such as drilling contractor, catering, to hotels and entertainment venues. The slowdown also leads to the delay in a number of development programs of the local governments due to the lack of budget.
The decline in economic activities in the region can be seen from the fall in economic growth rate in a number of provinces that host oil and gas industry. East Kalimantan took the hardest hit by recording a minus economic growth of 0.9 percent in 2015 compared to 6.5 percent in 2011.
"If this is not immediately anticipated, the current situation could have implications on Indonesia's energy security in the long run," said Director of IPA Tenny Wibowo.
Even so, the decline in oil prices has opened up opportunities to increase investment in the upstream oil and gas sector. It?s because oil and gas exploration costs have decreased following the trend in oil prices. Tenny Wibowo said that this opportunity should be used to increase exploration in order to increase reserves and production capacity nationwide. Thus, when oil prices go up again, the government can reap the benefits of abundant stocks.
Based on the projections in the BP Energy Outlook 2016, oil prices could experience a rebound in the next few years as demand increases. After all, fossil fuels are still dominant, which account to 80 percent of the total world demand in 2035.
"This effort is in line with the government?s priorities to create a national energy security. Abundant energy reserves can reduce oil imports," he said.
However, Tenny said that the move needs the support of stakeholders, especially the government. Incentives to encourage investment in exploration, particularly during low oil price are very much needed. These incentives include moratorium on exploration which is currently underway for 10 years and changing the profit-sharing scheme to make it more flexible to keep pace with the trend in oil prices.
The incentive can be revoked when oil prices rose to a certain position. As for the long term, the government is expected to remove obstacles and disincentives. Among others: the difficulty of land acquisition, the complicated licensing process, unfriendly tax system, unclear inter-sector regulations, and criminalization of oil and gas industry players
Editing by Johannes Simbolon