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)