Gas sales to Singapore

Gas sales to Singapore

Following media reports of the sale of gas to Singapore, a
subject on which Mr. Budi Santoso, a member of the House of
Representatives, commented, allow me to congratulate the
Indonesian government and the three contractors (PSCs) for their
success in selling gas to Singapore.

This sale is indeed a blessing to us considering that it took
over a decade before Singapore's government finally decided to
buy gas from us. In fact, Singapore could have opted to purchase
gas from Thailand or Malaysia, which would be cheaper because
establishing an overland gas pipeline would be less costly than
building one offshore. It is more complex to develop this gas
field than an oil one, especially considering that the gas field
is located in the Natuna Sea and that building a 470-km pipeline
will be very costly. In fact, to develop a natural gas field, a
contractor must meet four criteria, one of which is to provide a
guarantee that there will be buyers for a minimum of 15 to 20
years.

With the development of a gas field in the area of the Natuna
Sea, Indonesia will not only earn about US$123 million but it
will also enjoy the transfer of advanced offshore engineering
technology, regional economic and community development, as well
as increased national security in the area around Natuna Sea.
Amid the international competition in the natural resources
industry, we should thank God for all these benefits we will
receive.

As for the high investment put up by the contractors and the
large percentage of profit they enjoy, I believe that it is quite
fair considering that as an operator, a contractor has to put up
its investment first and bear the high risk that it will not be
able to reap any profits until at least after a decade of
operations.

About the allegation that this undertaking will leave a burden
of debt to the next generation, as stated by Mr. Budi Santoso, I
think that this allegation is both incorrect and unfounded
because the foreign exchange receipts generated from the sale of
the gas can be used to pay PSC loans (the principle of a PSC is
that it bears the exploration risks and provides financial and
technical expertise for the operations), while also guaranteeing
that the gas deposit may supply gas for over 22 years. One of the
principles of a hydrocarbon economy is that it never inflicts
losses to the people or the state. There has never been any
country which has been disadvantaged by the presence of gas
fields.

As for direct appointments for exploration, production and the
construction of pipe transmission facilities, it is only natural
that the PSCs, as the operators, be authorized to make direct
appointments, although the PSCs, following general practices,
will select only highly qualified companies through a tight
selection process in which the standard operating procedures from
the American Petroleum Institute are applied. What matters is
that Indonesian companies play a bigger role in this undertaking
and that the PSCs resort to direct appointment solely to save the
subsurface assets they have invested. I believe what should cause
concern is the environmental impact of this undertaking,
particularly with respect to the management of carbon dioxide
emissions. To go back to what Mr. Budi Santoso said, I am
inclined to think that the matter has been exaggerated all out of
proportion.

DIRGO D. PURBO

Jakarta