Liberalizing the oil industry<\/p>\n
The state oil and gas company Pertamina will lose its monopoly
\nin the upstream oil and natural gas industry -- exploration,
\nmining and refining -- within two years, and in the distribution
\nof oil products within four years. That is the essence of the new
\noil and gas industry law which was approved by the House of
\nRepresentatives on Tuesday.<\/p>\n
The rationale for the liberalization move is that, like in
\nother industries, the greater the degree of competition and the
\nmore flexibility enterprises and investors have in the way they
\norganize their operations, the greater will be the benefits for
\nconsumers.<\/p>\n
As investors will be permitted reasonable margins from both
\ncrude oil extraction, and refining and end products, they will be
\nencouraged to increase investment in exploration. This contrasts
\nwith the present situation whereby oil contractors are restricted
\nto crude oil production alone. The additional exploration will,
\nin turn, increase the volume of proven hydrocarbon reserves,
\nthereby prolonging the period of sustainable oil production in
\nthe country. Most analysts predict that without steady,
\nsignificant discoveries of new reserves, Indonesia will become a
\nnet oil importer by 2010.<\/p>\n
Given the severely restricted capabilities of domestic
\ncompanies, especially since the 1997 economic crisis, foreign
\ninvestors will certainly continue to dominate the exploration and
\nextraction segment of the industry, which is highly risky as well
\nas being capital- and technology-intensive.<\/p>\n
How can the government ensure that such branches of production
\nas oil and natural gas, which are vitally important for the
\npeople, remain fully under state control, as required by the
\nConstitution?<\/p>\n
The new law addresses this concern by requiring the setting up
\nof a steering body through which the government will administer
\nand award oil exploration blocs and oversee exploration and
\nextraction by foreign and domestic investors, and a regulatory
\nbody through which the government will oversee wholesale and
\nretail oil and gas markets and maintain strategic oil reserves.
\nBoth functions are now vested in Pertamina. To secure their
\nindependence and integrity, the executives of both bodies will be
\nappointed by the President from candidates selected by the House
\nof Representatives.<\/p>\n
The new law also contains clear-cut provisions requiring
\nconsultations with local administrations regarding the oil blocks
\nin their areas that are to be tendered to investors, and clear
\nguidelines on land acquisition and compensation for local people.<\/p>\n
Since Pertamina will be relieved of administrative and social
\nburdens, and of the responsibility for distributing fuel at
\nuniform prices throughout the country, it will then be able to
\nconcentrate on exploration, production, refining and marketing on
\na fully commercial basis so that profits may be maximized.<\/p>\n
The two-year transition period to free competition in the
\nupstream industry and the four-year time lag before the whole
\nliberalization of the hydrocarbon fuel market are considered
\nadequate for Pertamina to gear itself up for free market
\ncompetition.<\/p>\n
The concern that foreign companies will edge Pertamina
\ncompletely out of the oil market appears to be groundless. If
\nPertamina is unable to restructure itself into a highly
\ncompetitive company with a completely new corporate culture as
\nwell as managerial and financial autonomy during the transition
\nperiod, then there is no reason for the government and taxpayers
\nto continue supporting its existence.<\/p>\n
After all, Pertamina already has a great advantage against new
\nplayers in that its refineries and marketing infrastructure (bulk
\nhandling and storage facilities) are already in place, and its
\nmarketing networks already well developed.<\/p>\n
The biggest challenge now is preparing the steering and
\nregulatory bodies to become highly competent and efficient
\nwatchdogs of the oil industry, ones which possess a high level of
\ncredibility. This is essential as it is these bodies which will
\ndetermine whether the oil market will really become fully
\ncompetitive, especially after 2004 when domestic fuel prices will
\nbe set on a par with international prices.<\/p>\n
Whatever policies and guidelines are issued in implementation
\nof the law and however the two bodies are structured and managed,
\none thing is clear: Indonesian consumers will be best served only
\nby opening the market to all types of companies -- producing or
\nmarketing firms which buy products locally or import refined
\npetroleum products, and companies that produce oil elsewhere or
\npurchase oil from local reserves.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/liberalizing-the-oil-industry-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}