Too much uncertainties in oil and gas bill: oil association
Tuesday, May 22 2001 - 06:30 AM WIB
Lacking clarity in the new oil and gas bill, such as covering contract's sanctity, and market deregulation, add to uncertainties in the industry and could impede foreign investment inflow, according to The Indonesian Petroleum Association (IPA) on Monday.
"Investors hate uncertainties, any kind of change makes them nervous," IPA chairman Bill Fanagan told The Jakarta Post following a hearing with the House of Representatives' Commission VIII, which among others oversees energy affairs. He suggested that improvements be made in some areas of the bill to ensure better certainty in the industry.
"On the sanctity of contracts in particular, that there'll be clarity with respect to the existing contracts and new contracts," he said.
Other questions, he said, concern the bill's introduction of a regulating and implementing body in the oil and gas industry.
The government introduced the two bodies to replace the industry's regulating role of state oil and gas company Pertamina.
Under the new bill, the government plans to turn Pertamina into an ordinary company and liberalize the oil and gas sector.
"Part of the government's job is to make sure that it's clearly understood how the implementing body will work and what its authority will be," Fanagan said.
He said that companies were confused over the role of the implementing body when it comes to signing oil and gas contracts.
Under article 11 of the bill, a company must negotiate the terms of contract with the minister, but must also seek the contract's signing with the implementing body.
"The law must ensure that there'll be no renegotiation with the implementing body," IPA said in its presentation to Commission VIII.
Legislators are debating the new oil and gas bill, after the government submitted it in earlier this year.
With the bill the government hopes to replace the current two laws, Law No 44/1960 on the oil and gas industry, and Law No. 8/1971 on state oil and gas company Pertamina.
Fanagan also called for more flexibility in the bill, saying that it should allow the government adjust rulings to attract investment.
He proposed that a minister of energy and mineral resources be granted desecration in some areas of the law.
"That allows the law to stay competitive on an international bases, so he (the minister) may decide that the terms are too tough, that they're not getting the investment that they want, so what he'll do is make some adjustments to the areas where he has the desecration to make it attractive to investment to continue to come into the country," he explained.
Fanagan said a study showed that Indonesia was among the top 25 percent of countries with the toughest contract terms in the oil and gas industry.
"That means it (Indonesia) got the highest level taxation on the industry," he said.
Although the study was issued about four to five years ago, he added, little has changed since.
"I know of only a couple of places in the world that are tougher than Indonesia," he said.
Fanagan suggested the government to balance between imposing tight taxation rules and attracting oil and gas investments.
An alternative, he said, was to provide incentives during difficult political circumstances to continue to lure investment.
"If they (the government) see investment start to drop, then they have to ask themselves whether it's just politics or a combination of tough politics and tough fiscal terms that stop investment," he explained.
Uncertainties plagued the country's oil and gas sector since the downfall of the Soeharto regime in 1998.
According to Pertamina, investment in the industry has slowed as many oil and gas companies face security threats, while some others are embroiled in legal, or labor disputes. (*)