Government promises transparent oil contracts

Government promises transparent oil contracts

JAKARTA (JP): The Ministry of Mines and Energy promised on
Friday greater transparency and collusion-free procedures if it
was given the right to award lucrative oil exploration contracts.

The ministry's secretary-general Djoko Darmono said that under
an oil and gas bill currently being deliberated in the House of
Representatives, all oil contracts would be awarded through an
open and transparent auction.

The state-oil company Pertamina, which should become fully
incorporated under the proposed legislation, would lose its
current authority to award the contracts, but it would be allowed
to join in the auction bids, Djoko said.

The ministry is currently embroiled with the House over the
question of who should have the right to award the contracts.

The House has insisted that the right by retained by Pertamina
or given to a new agency. Some House members have expressed
concerns that the bill would cause the emergence of other types
of corruption, collusion and nepotism (locally known as KKN).

But the deliberation has also reflected powerful behind-the-
scenes lobbying by Pertamina, which seems to have won the support
of many House members. The lobbying is most apparent in the
debate on the timetable to turn Pertamina into a fully
incorporated company, which would effectively mean a loss of many
of its monopoly rights and other privileges.

Minister of Mines and Energy Kuntoro Mangkusubroto said on
July 30, before the House went into recess, that the issue had
been settled and the ministry would take over the rights.

However, Djoko said the House's special committee handling the
bill had written to the minister insisting that the matter was
not resolved.

Djoko said the ministry, under its proposal, would only act as
a regulator and would not conduct transactions. All proceeds from
the oil contract auction would be transferred directly to state
coffers.

He said the House would also be involved in deciding which
type of contracts were appropriate.

Most foreign companies exploring and producing oil in
Indonesia currently operate under production-sharing contracts
with Pertamina. According to the bill, in the future there would
be three types of contract: production-sharing, service, and tax
and royalty, Djoko said.

He said Pertamina should become a fully incorporated limited
liability company within two years after enactment of the
legislation, hopefully later this year.

The House's special committee and Pertamina had called for a
"two-year plus" transition period for the state oil company to
adjust and prepare itself to be able to compete with big
multinational companies vying for Indonesia's lucrative oil
business.

Some of those lobbying have suggested a seven years grace
period.

However, Djoko said that prolonging the transition period was
not possible beyond 2003 when Indonesia would have to comply with
the terms of free trade arrangements with other countries in the
Association of Southeast Asian Nations (ASEAN).

He said two years was more than sufficient.

"From our past experience, state-owned electricity company PT
PLN and gas company PT PGN only needed one year to become limited
companies. Pertamina, a much larger company with a lot more
assets, would need two years."

During that two year transition time, Pertamina would still
hold the monopoly in providing fuels for the domestic market.

"Pertamina would never become strong and independent if it
continued to rely on government support."

Djoko refused to comment on Pertamina's reported $6.1 billion
losses through corruption and inefficiency. The report emerged
last month from a preliminary finding by PricewaterhouseCoopers
which was leaked to the media.

Djoko said the final report by the foreign auditor would be
announced on Aug. 31 by the Coordinating Minister for Economy,
Finance and Industry, Ginandjar Kartasasmita. (02)