INTERVIEW: BP-Migas will give equal treatment to all PSCs
Monday, November 18 2002 - 01:57 AM WIB
Question: BP-Migas has recently appointed members of its executive board. What is the main priority of the agency?
Answer: The mission of BP-Migas is to optimize efforts towards generating state revenues from the oil and gas sector. Our task is also to support the national oil and gas industry. This should, of course, be translated into creating proportional efforts in the field such as through the optimization of oil and gas production and the reduction of production costs.
Our other task is also to speed of the process of approvals needed by oil and gas contractors. At present there are 130 production sharing contractors (PSCs), 40 of which have already operated while the others are still in stage of exploration.
As we know, every year PSCs, which have already operated, need approvals for their working plans and budget, while others who are still in stage of operations also need approval to commence production. The approval process should be sped up to ensure that the state revenues from oil and gas production will be maximal.
Q: What is the strategy of BP-Migas in speeding up the approval process?
A: During the last two months we have focused our works on evaluating our working system. With the recent appointment of the deputies, we will start formulating the new organization and to adopt the new system. From the evaluation, we learned that we still lack the human resource especially those related to the handling of approvals on exploration and production activities. We will increase the manpower by eight percent to cope with the manpower shortage. In addition, we will also relocate the staff from other divisions to support the program.
Q: Do you think the program will work, given the fact that most of the workers handling the job come from the old organization?
A: I am sure there will be a change because not all of the important positions in the new agency are filled by the same people. We will see the process and improve the human resource development.
Q: So, what kind of systems that will be implemented by the agency to support its works?
A: We will formulate what is called Key Performance Indicator (KPI). The KPI will be used as benchmark to measure the working performance of the existing PSCs such as related to the amount of production cost for every barrel of crude oil, or the amount of money needed for each meter of oil wells. The system will certainly be able to speed up the process particularly in obtaining important data and information from PSCs.
Q: Do you think the new system will be supported by existing PSCs?
A: It is a must. The existing PSCs should support the program, if not, the establishment of BP-Migas will be useless, especially if its works are slower than before. We therefore will periodically evaluate our works so that we will at lease be able to meet the state budget target. In 2003 we are targeting to produce 1.27 million of crude oil per day.
Q: Where is the position of Pertamina in the new system?
A: In the upstream sector, Pertamina will operate like other PSCs. It means that Pertamina is one of players which have the same rights and obligation with other PSCs. In the downstream sector, there is a rumor that the World Bank has proposed the government to split Pertamina?s operation.
Under the new oil and gas law, Pertamina?s monopoly in the oil and gas industry will be totally removed. If Pertamina, later, continue to control the market share, there will no problem as long it does not violate the anti monopoly law. The most important thing is that we have opened the industry to other business players.
Q: Will BP-Migas give Pertamina some privileges as often required by the state owned oil and gas company?
A: Basically we will give equal treatment to all PSCs. It means there will no special treatment. But certain facilities could be given to Pertamina especially before the tender is announced. For an example, before we auction new oil fields, BP-Migas will first offer Pertamina certain oil block. If Pertamina then takes the offer, it should have the funds to develop it so that the block will not be left idle.
If the working concessions have been tendered, there will no more facilities given to Pertamina. All should receive equal treatment. Pertamina which will operate as a limited company should be able to compete.
Q: Do you think Pertamina will be able to compete?
A: Why not? Pertamina will be freed from its non-business mission so that it will be able to concentrate on its business activities. Yes, the removal of the monopoly should be carried out in stages but I am sure Pertamina will be able compete.
Q: Is Pertamina also required to pay taxes like other PSCs?
A: Pertamina is required to pay taxes of about 60 percent for its existing fields. But for the new oil and gas fields, Pertamina should follow the tax system that has been imposed on other PSCs.
Q: How about national companies. Will they be given the opportunities to enter oil and gas industry?
A: We have no plan to give special privileges to national companies intending to enter the oil and gas industry. Whether or not they are able to compete, it is some thing else. What we have in mind is to encourage them to provide goods and services to oil and gas related companies. We have also appealed the local banks to provide loans to national companies which are involved in oil and gas exploration activities. If the banks are still reluctant to provide loans it will be difficult for the national companies to enter the industry.
Q: Oil and Gas Law No. 22/2001, introduces a new oil and gas marketing system. What is the explanation for it?
A: Law No. 22/2001 on oil and gas and Law No. 42/2002 on BP-Migas stipulate that BP-Migas can designate other parties to sell state shares of oil and gas. As for oil, such a system has been practiced. For example, Production Sharing Contract (PSC) stipulates that the parties are obliged to take part in marketing and selling oil routinely, unless the government has a different view. But, that exception must be set forth through 45 days of notification. The price of oil that they set must be up to Indonesian Crude Producer (ICP) standard.
Q: How about the marketing of gas?
A: There is quite a significant difference in Indonesia?s gas selling systems before and after Law No. 22/2001 was signed. Before it was signed, gas sales, for domestic and foreign markets, was directly handled by Pertamina. Accordingly, after Law No. 22/2002 was ratified, Pertamina continued to handle existing contracts. For example, contracts for the sales of gas from Bontang and Arun, which Pertamina has signed since 1970s. Also, gas sales to Singapore from West Natuna, and gas sales from West Java and East Java gas fields.
Further, the government has now decided to designate Pertamina to coordinate gas sales from complicated gas fields.
This means that, for gas fields with multi-buyers and multi-sellers, gas sales will be handled by Pertamina. For example, the current gas sales from Central Sumatra gas fields to Singapore.
As for simple gas fields, namely gas fields with single buyer and single seller, and gas from the fields is transmitted through one pipeline, it would be not effective if Pertamina serves as gas sales leader. For example, gas production in East Java. In this case, PSCs can sell gas directly to (state power company) PLN. In East Kalimantan, gas producers can also sell gas directly to fertilizer makers. This is more effective.
Q: Then, who will handle contract extension? Will there be another evaluation over that matter?
A: No. I think, it would make things much easier if such contracts are awarded to the old contractor, Pertamina.
Q: How about the overseas marketing of our LNG?
A: We are now facing competitors in same region namely Malaysia, Brunei Darussalam and Australia. Moreover, there are very potential producers namely Qatar, Russia and Oman. But their location is far from Asia. The cost of transporting LNG from those countries is quite high.
Q: Can we maintain our dominant position?
A: I am certain we can. Recently, we were awarded a contract to supply LNG to Fujian, although we had previously lost in the tender to supply LNG to Guangdong. Further, Taiwan seemed to open a LNG supply tender. I think we have quite big opportunity to become the largest LNG exporter, but to make this happen we have to optimize our marketing strategy.
Q: What problems will be faced by BP-Migas?
A: We have seen a drop in production on the whole these years. The biggest drop has happened with oil production. The factor behind it is troubled security and natural depletion.
As for natural gas, derease in production is quite evident. For example, the drop in gas supply in East Java. It has deviated from what had been projected, and the production drop has occurred so fast. It has caused a fall in gas supply for power plants and industries in the province.
A similar case is found in Aceh. A drop in gas supply has caused some of our LNG trains idle. This requires special attention, because in order to supply enough gas to the domestic market we have to swap gas supply from Arun to Bontang.
Q: How could you solve those problems?
A: We will solve those problems case by case. In East Java, for instance, we will speed up production by PSCs in the province like Lapindo Brantas, Amerada Hess, Santos and ExxonMobil. Surely, in the long run, Terang Sirasun and Cepu will start production. We all know that Cepu has large reserves of gas.
We are aware that, judging from current the production of PSCs, there will not enough gas supply for East Java. Accordingly, we need to prepare other alternatives including bringing in natural gas from Tangguh, Papua.
Q: How far has that plan progressed?
A: It is still in the pre-feasibility study phase. BP Plc and Lemigas have jointly conducted the study over the possibility of shipping LNG from Tangguh to Java Island. Surely, it is a very good move although the final decision on it will depend on the economy scale, on whether the price is competitive. It should be avoided that gas from Tangguh is sold in Java at so high price. As long as it is economic, the project plan should go ahead.
Q: Why are you considering to bring in gas from Tangguh? PGN has in fact planned to construct pipelines from East Kalimantan to East Java.
A: It is just a discourse which needs to be followed up on with feasibility studies. So, there is a long way to materialize the idea. But, I think it could be more feasible to build pipelines from Cepu to East Java rather than building pipelines from East Kalimantan to East Java.
However, all possibilities should be considered, and feasibility studies on that matter is being conducted. Let us just wait and see. (*)