House's rejection of oil and gas bill praised

House's rejection of oil and gas bill praised

JAKARTA (JP): The House of Representatives' decision to reject
an oil and gas bill and return it to the government is a positive
measure in securing the country's interests in the oil and gas
sector, analysts said.

"The controversy in the deliberation of the bill was caused by
the competing interests of the government, in this case, the
Ministry of Mines and Energy, and state oil and gas company
Pertamina," said Arif Arryman, managing director of the Econit
advisory group.

The ministry and Pertamina contested the right to control the
lucrative sector, he said.

"The oil and gas sector has strategic value for Indonesian
development," he said, arguing that full liberalization was not
appropriate for conditions prevailing in Indonesia.

Indonesia is not ready to compete in a fully liberalized
market because it does not have any strong players in the sector,
Arif added.

The bill was designed to liberalize the petroleum sector,
opening the downstream sector, currently monopolized by Pertamina
to private companies. The draft legislation also will transfer
the authority of awarding oil contracts from Pertamina to the
government.

Pertamina holds the power to award oil and natural gas
contracts to domestic and foreign companies, and regulates and
supervises the implementation of the contracts.

With the rejection of the bill, Law No. 8/1971, which gives
Pertamina the monopoly in the oil sector and the authority to
award oil and gas contracts, remains in effect.

Legislators rejected the government-sponsored oil and gas bill
last week after a six-month deliberation because House members
could not reach agreement on several crucial issues, including
stripping Pertamina of its right to award oil and gas contracts.

A mines and energy analyst, Bachrawi Sanusi, said he opposed
the bill because it violated the Constitution.

"The Constitution, clearly, does not mention any form of
market mechanism and capitalism."

He said the bill would have made it easier for multinationals
to control Indonesian oil and gas resources because Pertamina and
other domestic companies would not be able to compete in the
high-risk industry which requires major capital and high
technology.

"The multinationals will simply take control of and exploit
Indonesian resources," Bachrawi said.

The ministry argued that Indonesia was the only country where
a company, and not the government, was authorized to award oil
and gas contracts. It said the right to award contracts should be
returned to the government.

Nevertheless, Arif said the business license, proposed by the
government to replace the system of production-sharing contracts,
would cut the government's revenues from the hydrocarbon sector.

Arif warned that Pertamina would never become a competitive
company if the ruling elite continued to use it as a cash cow.

Moreover, he added, the bill would not be effective in rooting
out corruption, collusion and nepotism (KKN) in the sector.

The government expressed concern over the rejection of the
bill, arguing that it would make it extremely difficult to cope
with irregularities in the sector.

Pertamina's audit, conducted by PricewaterhouseCoopers earlier
this year, revealed US$6.1 billion in losses caused by
corruption, inefficiency and other forms of malfeasance over the
last two years. (02)