US lobby urges RI to honor oil, gas contracts

By Godang Sitompul

President of the US-ASEAN Business Council (USABC) Alexander Feldman urged the Indonesian government to honor oil and gas production sharing contracts, and resolve other obstacles hampering US investment in the sector.

"Over the past several years, there has been steady erosion in the value of PSCs as a result of ministerial decrees and regulatory changes that have impacted PSC terms,? the business lobby group said in a statement issued during a meeting Monday between Feldman and the Indonesian Minister of Energy and Mineral Resources Jero Wacik, and Coordinating Minister for the Economy Hatta Rajasa.

The USABC expressed concern over the current criminalization against Chevron Indonesia in relation to its bioremediation project in the country.

"The oil and gas sector is deeply concerned about the impact and ramifications of these legal judgments. This is a precedent that will affect not only the continuity of oil and gas operations, but also the sustainability of future investment in Indonesia. Legal and business uncertainties are creating an environment that is increasingly less conducive to the development of Indonesia's oil and gas industry," it said.

It added that Government Regulations No.79/2010 on cost recovery and income tax, has introduced more uncertainties, adversely impacting the economic return of existing investments, and has transferred control of cost recovery issues from the oil and gas regulator to tax authorities who are not responsible for oil and gas activities. ?It is unanimously opposed by U.S. oil and gas companies.?

Due to the impact that it will likely have on future investment, it appears to be working against the effort to increase oil and gas production, the council said. "This regulation eliminates a number of cost recoverable items and creates the effect of a new tax on companies that is counterproductive to Indonesia's own energy goals. By discouraging investment, production is likely to suffer thereby making the future predictions for Indonesia's energy supplies less clear and put further pressure on the economy by increasing the need for expensive imports and compounding the burden of fuel and electricity subsidies."

For existing PSCs it should not be applied retroactively, USABC. Otherwise it threatens agreed contract terms and can result in conflicts and legal disputes further slowing down the pursuit of oil and gas production growth. This regulation, and the retroactive application of it and other provisions to existing contracts is in direct conflict with Law 22/2001, which specifically grandfathers in the terms of existing contracts. The Supreme Court has denied an application for judicial review that was filed for these reasons.

Meanwhile, Coordinating Minister for the Economy Hatta Rajasa said in a statement that the government was moving to help introduce a better investment climate in the country including streamlining the lengthy bureaucracy process in obtaining the necessary investment permits as have been complained by the USABC.

?Obstacles to investment must be fixed, licensing procedures must be simplified,? he said in a statement. ?Luring fresh investment is for the nation?s interest.?

Editing by Reiner Simanjuntak