Fri, 19 Mar 1999

Debates on controversial oil and gas bill intensifies

JAKARTA (JP): Debates on the controversial oil and gas bill have intensified as Minister of Mines and Energy Kuntoro Mangkusubroto lobbies hard to win approval from the House of Representatives.

Leading oil and gas executives, government officials and analysts debated the bill in two separate workshops on Wednesday. The seminars were organized by the Indonesian Society for Transparency and the Management Institute at the School of Economics at the University of Indonesia.

Some analysts described the bill as riddled with loopholes.

They criticized Kuntoro for trying to diminish the role of state oil and gas company Pertamina in the industry by eliminating its monopoly on the downstream sector and stripping it of the right to award contracts and regulate and manage oil and gas contractors.

Other analysts, defending the bill's objective to eliminate Pertamina's monopoly, argued the new legislation would empower the company and create a more efficient oil and gas industry in the next millennium.

"The bill contains many loopholes. It features guidelines which are too broad. As such, it will be dependent heavily on government regulations," economist Sri Mulyani of the University Indonesia said at the workshop organized by the Indonesian Society for Transparency.

President of PT Caltex Pacific Indonesia Baihaki Hakim shared Mulyani's view that the bill specified broad guidelines only. But he gave the thumbs up to the bill's objective of eliminating monopolistic practices in the country's oil and gas industry.

"The era of etatism, in which the state controls business enterprises, is over across the world. This is the spirit of the bill, which will usher the country's oil and gas industry into the next millennium," Baihaki said.

Kuntoro and former president of Arco Indonesia, Tengku Nathan Machmud, were also keynote speakers at the workshop.

Pertamina's top officials were conspicuously absent from the forum. Pertamina's president Martiono Hadianto was scheduled to speak at the gathering but did not show up.

The University of Indonesia workshop had the appearance of a counter-seminar, as Pertamina officials dominated proceedings.

Also attending were members of the so-called Group of 20 -- former Pertamina officials and Ministry of Mines and Energy officials -- who recently voiced strong criticisms of the bill.

Keynote speakers were former minister of mines and energy Mohammad Sadli and Deputy Governor of the National Resilience Institute Purnomo Yusgiantoro.

The 46-chapter bill contains a number of points which analysts say will fundamentally change the face of the country's oil and gas industry.

First, it will lift the monopoly on the country's oil and gas downstream sector awarded to Pertamina in the Law of 1971. It will also allow foreign enterprises to develop refineries and market products for the domestic market.

Second, the government will take over the rights granted to Pertamina to award oil and gas exploration and production contracts and to regulate and manage oil and gas contractors.

Third, the bill allows oil and gas contractors to choose types of contracts other than the production sharing contract (PSC) for operations. Currently, the PSC system is obligatory.

Mulyani and Purnomo cautioned against the potential disruption in the country's fuel distribution system if the downstream sector was opened to foreign enterprises.

They said foreign companies, driven by profit, would prefer to sell fuel in the densely populated islands of Java and Sumatra, and would leave the task of distributing fuel in remote areas to Pertamina.

Foreign contractors would sell profitable fuel such as premium gasoline, while leaving the sale of unprofitable ones such as kerosene for Pertamina, they said.

Speakers at both workshops doubted the government's ability to manage oil and gas contractors. They proposed that a special independent agency, as well as the ministry and Pertamina, perform the task.

"The members of the special body should be well paid so that they will not be vulnerable to corruption in regulating and supervising oil and gas contractors," Sadli said.

Baihaki and Machmud said oil and gas investors were not concerned about who would run the supervisory agency as long as they retained ample control of their operations.

"Investors want to regain control of their operations in reaction to Pertamina's heavy-handed management and increasing control," Machmud said, adding that foreign investors preferred to adopt "a wait-and-see attitude" regarding the bill. (jsk)