Oil executive criticizes oil and gas law

An of a major American oil and gas firm criticized on Friday the oil and gas bill, which is expected to be passed into law next week, saying it failed to accommodate investors' interests, Jakarta Post reported Saturday.

"The bill fails to accommodate business interests. I'm afraid that oil and gas investment in the country will slump because of it," A.R. Natanegara, vice president of Conoco Indonesia, told reporters after a seminar on the new oil and gas law.

The House of Representatives is expected to pass the bill on oil and gas into law on Oct. 23.

He said foreign investors had identified five articles in the oil and gas bill which would cause problems for their businesses in the country. The five articles concerned tax, the establishment of the so-called "executive body", the obligation of investors to supply gas to the domestic market, the status ofexisting contracts and the licensing of operations.

The tax article stipulated that investors must pay taxes to the government in accordance with the tax regulations applicable when their contracts were signed, or in accordance with the existing regulations.

Currently, oil and gas investors paid tax to the government in accordance with the tax regulations applicable at the time their contracts were signed, with the tax figures being stated in the contract.

This had two consequences. The investors would be protected from any increase in tax under future regulations, but, conversely, they would also not be able to avail of any tax cuts under future regulations.

Natanegara said that if the government chose to impose taxes in accordance with the existing regulations, investors would face various unclear taxes and levies.

"It makes it difficult for us to plan ahead," he explained.

Natanegara said many oil and gas companies had also objected to the article which obliged them to supply gas to the domestic market, claiming that, among other things, the low gas price on the local market was unattractive to investors.

Natanegara also said that oil and gas investors objected to the establishment of the so called "executive body", comprisingexperts, which under the new oil and gas law will replace Pertamina for the purpose of signing contracts with investors.

Natanegara said that unlike Pertamina, the new agency had no clear legal status or assets.

Thus, the investors were worried that in case of a dispute, there would be no assets that could be used to compensate them for their losses.

"Investors will only sign deals with a party that has a clear legal status and tangible assets," Natanegara said.

Apart from the executive body, under the new law the government will also set up the so- called "regulatory body", which will manage the domestic fuel supplies which are now handled by Pertamina.

The two bodies will end the monopoly of the state oil and gas firm Pertamina in the industry.

Natanegara also questioned whether the government would honor the contracts that had been signed under the old laws.

"With the revocation of the old laws, the legal basis of the old contracts has become unclear and this has caused worries among investors," he said.

Natanegara also said that many investors were skeptical of the powers of regional administrations, which under the new law investors must consult with prior to commencing operations.

"We hope it won't just lengthen the bureaucratic chain," he said. (*)