Energy industry to benefit from Aceh peace deal
The Jakarta Post, Jakarta
The landmark peace deal signed by the government and Aceh rebels on Tuesday could finally bring to an end the years-long security troubles experienced by oil and gas firms in the province and encourage them to expand their operations there, analysts said.
The province's oil and gas output should increase in the future and the people of Aceh will have more money to rebuild their homeland after decades of violent conflict that claimed thousands of lives, the analysts said.
"The peace deal will help improve the country's investment climate in general and, in particular, help revive the troubled oil and gas industry in Aceh province," energy analyst Kurtubi told The Jakarta Post.
Kurtubi was referring to the agreement signed by the Free Aceh Movement (GAM) and the Indonesian government on Tuesday in Geneva to end decades of hostilities.
Rich in oil and gas, Aceh is home to one of the country's most important liquefied natural gas (LNG) complexes, located in Lhok Seumawe. The complex is jointly owned by state oil and gas company Pertamina, ExxonMobil Indonesia, a subsidiary of American energy giant ExxonMobil Corp., and a Japanese consortium called JILCO.
The Arun LNG plant originally had six trains but only four trains are now in operation due to declining gas supplies. The plant supplies LNG to South Korea and Japan.
The plant was forced to suspend operations for several months in 2001 following a decision by ExxonMobil, the sole gas supplier to the plant, to stop its gas operations in the province due to security worries arising from the conflict between the military and rebels.
Large industrial companies in the province, including fertilizer firms PT Pupuk Iskandar Muda and PT ASEAN Fertilizer, were also forced to suspend operations due to the halt in gas supplies.
The suspension of LNG production at the Arun plant harmed Indonesia's reputation as the world's LNG supplier.
ExxonMobil was only willing to resume its gas operations in July last year, about four months after the suspension, after the government sent in more troops to the province to protect its operations.
Kurtubi said the Aceh peace agreement would reduce the risks faced by Pertamina and ExxonMobil in operating in the province, and provide ExxonMobil and other energy firms in Aceh the opportunity to develop additional gas resources. This would ensure the security of gas supplies to the Arun LNG plant.
"The peace deal is also expected to boost Indonesia's profile as an LNG producer, as buyers will be more confident about the security of LNG supplies from Arun," Kurtubi said.
In addition to Arun, Indonesia also has the Badak LNG center in Bontang, East Kalimantan, and plans to build another complex, the Tangguh LNG plant, in the Bird's Head area of Papua.
Hariyanto, spokesman for the country's upstream oil and gas authority, BP Migas, cautiously welcomed the peace deal, saying that even with the deal it would take time for peace to materialize in Aceh.
"The peace deal is the dream of many people. Yet it is still a political thing. The reality in the field could be different.
"Industry players will wait for one to six months before they are convinced that Aceh is heading toward peace. Once they are convinced, they will certainly increase their activities, which, of course, would benefit not only the companies but also the people of Aceh and the country in general," Hariyanto told the Post.
Under the Nanggroe Aceh Darussalam autonomy law, Aceh is entitled to receive 70 percent of the government's oil and gas revenue from the province. In comparison, almost all other provinces receive 15 percent of the government's oil revenue and 30 percent of its gas revenue from their respective areas.