Executive criticizes oil and gas law

Executive criticizes oil and gas law

Moch. N. Kurniawan
The Jakarta Post
Jakarta

A top executive of a major American oil and gas firm
criticized on Friday the oil and gas bill, which is expected to
be passed into law next week, saying it failed to accommodate
investors' interests.

"The bill fails to accommodate business interests. I'm afraid
that oil and gas investment in the country will slump because of
it," A.R. Natanegara, vice president of Conoco Indonesia, told
reporters after a seminar on the new oil and gas law.

The House of Representatives is expected to pass the bill on
oil and gas into law on Oct. 23.

He said foreign investors had identified five articles in the
oil and gas bill which would cause problems for their businesses
in the country. The five articles concerned tax, the
establishment of the so-called "executive body", the obligation
of investors to supply gas to the domestic market, the status of
existing contracts and the licensing of operations.

The tax article stipulated that investors must pay taxes to
the government in accordance with the tax regulations applicable
when their contracts were signed, or in accordance with the
existing regulations.

Currently, oil and gas investors paid tax to the government in
accordance with the tax regulations applicable at the time their
contracts were signed, with the tax figures being stated in the
contract.

This had two consequences. The investors would be protected
from any increase in tax under future regulations, but,
conversely, they would also not be able to avail of any tax cuts
under future regulations.

Natanegara said that if the government chose to impose taxes
in accordance with the existing regulations, investors would face
various unclear taxes and levies.

"It makes it difficult for us to plan ahead," he explained.

Natanegara said many oil and gas companies had also objected
to the article which obliged them to supply gas to the domestic
market, claiming that, among other things, the low gas price on
the local market was unattractive to investors.

Natanegara also said that oil and gas investors objected to
the establishment of the so-called "executive body", comprising
experts, which under the new oil and gas law will replace
Pertamina for the purpose of signing contracts with investors.

Natanegara said that unlike Pertamina, the new agency had no
clear legal status or assets.

Thus, the investors were worried that in case of a dispute,
there would be no assets that could be used to compensate them
for their losses.

Natanegara also questioned whether the government would honor
the contracts that had been signed under the old laws.

"With the revocation of the old laws, the legal basis of the
old contracts has become unclear and this has caused worries
among investors," he said.

Natanegara also said that many investors were skeptical of the
powers of regional administrations, which under the new law
investors must consult with prior to commencing operations.

"We hope it won't just lengthen the bureaucratic chain," he
said.