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)