Sharing oil, gas income<\/p>\n
Significant improvements have been made in the bureaucratic,
\nregulatory, fiscal and legal environments for oil and natural gas
\ninvestment but these achievements could be rendered meaningless
\nif local administrations do not support the central government's
\npolicies in the hydrocarbon industry.<\/p>\n
The Ministry of Energy and Mineral Resources, as the policy
\nmaker and the BP Migas, as the regulatory body in the upstream
\noil and gas industry, should therefore pay serious attention to
\nthe issues raised on Tuesday by a team of Regional
\nRepresentatives (DPDs) in the People's Consultative Assembly.<\/p>\n
The DPDs disclosed that several local administrations had
\noverzealously fought for a bigger share of revenues from oil and
\ngas mining operations, which seemed to be in violation of the
\n2001 Oil and Natural Gas Law and the law on fiscal relations
\nbetween the central government and regional administrations. They
\ncited Riau province and Garut and Indramayu regencies in West
\nJava as examples where local demands for bigger portions of
\nrevenues from oil and gas mining could escalate into major
\nhurdles to new investments in the petroleum industry and similar
\nmovements in other regions.<\/p>\n
The 2001 oil and gas law clearly stipulates that the local
\nadministration of the oil or gas producing areas is entitled to a
\nportion of the central government's share of the oil or natural
\ngas produced by contractors. The portion amounts to 15 percent
\nfor oil and 30 percent for natural gas.<\/p>\n
This oil and natural gas revenue-sharing ratio has been
\nconsidered relatively fair and sensible because local
\nadministrations are already entitled to 80 percent of the
\nrevenues derived from the exploitation of other mineral
\nresources. Forcing the central government to surrender a bigger
\nportion of its income from oil and gas concessions could sharply
\ncurtail its financing ability to help poor provinces, which are
\ndevoid of natural resources.<\/p>\n
However, simply ignoring the local administrations' demands is
\nnot wise either. The oil and natural gas law requires the central
\ngovernment -- Ministry of Energy and Mineral Resources and BP
\nMigas -- to conduct consultations with local administrations
\nregarding oil blocks in their areas that are to be tendered to
\ninvestors. The law also stipulates clear-cut guidelines on land
\nacquisition and compensation for local people.<\/p>\n
The consultation, however, should not simply be perfunctory,
\nbut should be a meaningful and substantial exchange of views
\nabout the prospects and challenge of oil and gas mining, their
\ndirect benefit to the local economy and the country as a whole.<\/p>\n
Only through meaningful consultations will the government be
\nable to gain informed cooperation on the part of local
\nadministrations. And support of regional administrations are
\nvital because almost all the prospective tertiary sedimentary
\nbasins in the country are located in remote, out-of-the-way
\nareas.<\/p>\n
However, the central government needs to be able to act
\ndecisively if consultations have been exhausted and local
\nadministrations continue to stubbornly push ahead with
\nunreasonable demands that are contrary to the letter and spirit
\nof the law.<\/p>\n
The government also needs to investigate local
\nadministrations' complaints about late disbursement of their
\nshares of oil and gas revenues and come out with a more expedient
\ntransfer system.<\/p>\n
True, the finance ministry needs some time to assess the
\ncentral government's share of the oil and gas produced by
\ncontractors because it is the net production (after production
\ncosts are recovered) that is used as the basis for the sharing
\nratio. Still, too-slow disbursement could cause cash-flow
\nproblems for local administrations.<\/p>\n
Geologists still see Indonesia as one of the most promising
\nareas for oil and natural gas prospecting but all the huge
\npotential oil and natural gas reserves will remain meaningless
\nand without economic value if they are not extracted. Oil and gas
\nextraction require technology and huge funds, which
\nunfortunately are not available locally.<\/p>\n
Legal and regulatory certainty and conducive bureaucratic
\nmachinery are particularly vital for investors in the upstream
\nsegment of the hydrocarbon industry -- exploration, mining and
\nrefining crude oil -- as this business not only involves high
\nrisks and requires large amounts of capital but also has a very
\nlong payback period.<\/p>\n
We are already a net oil importer and as domestic fuels are
\nstill heavily subsidized, the steady rise in consumption has been
\ngauging a big deficit into the state budget with all its negative
\nrepercussions to the economy.<\/p>\n
Since it usually takes about five to six years for an oil
\nconcession to produce, it is most urgent for the government to
\nfurther improve the overall climate of investment in the oil and
\ngas industry.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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