Indonesia should downgrade OPEC status: Panel

Indonesia should downgrade OPEC status: Panel

Dow Jones, Jakarta

A high-level Indonesian panel has recommended that the country downgrade its membership in the Organization of Petroleum Exporting Countries (OPEC) to "observer" status, an official document recently viewed by Dow Jones Newswires indicated.

A downgrade would reduce the financial commitments of Indonesia, already a net importer of oil, to the group, according to the document.

The document doesn't say if such a downgrade would affect Indonesia's right to vote during OPEC meetings on the group's output policy. However, the document does indicate Indonesia's powers within OPEC would be curtailed.

It is unclear if OPEC would permit such a downgrade, which would be unprecedented in the group's history.

According to the document, the panel, which includes high- level officials from the Ministry of Energy and Mineral Resources, Finance Ministry and Ministry of Foreign Affairs, is recommending the OPEC membership status change on economic grounds.

Such a downgrade would exempt Indonesia's cash-strapped government from OPEC's annual membership fee of $1 million and a yearly contribution of US$52,016 to the OPEC Fund, the document said.

Government officials contacted by Dow Jones Newswires declined to comment on the document, merely saying the government is still discussing the matter.

On Indonesia's membership in OPEC, which the country joined in 1962, the panel has considered three options, the document said.

Indonesia could maintain its current status until it is officially declared a net oil importer and disqualified as an OPEC member by the group.

It could also withdraw from OPEC or downgrade its membership to "observer" status.

"Taking into account (the costs and benefits), it's recommended - if possible - to take the third option, which is to continue as a member, but with 'observer' status, so that (Indonesia) is exempt from the obligation to pay contributions," according to the document.

The panel's conclusion is the result of a directive issued by Mines and Energy Minister Purnomo Yusgiantoro earlier this year, who had called for an official review of Indonesia's OPEC membership, amid pressure from legislators and industry analysts.

That pressure has stemmed from Indonesia's steadily diminishing crude oil output due to a lack of fresh investment and exploration as established oil fields run dry.

Foreign investors have steered clear of pumping new money into Indonesia's energy sector due to infrastructure concerns and perceptions of an unpredictable judiciary.

For the first time ever, Indonesia became a net crude oil importer for several months last year as a lack of new oil exploration over the past three to five years sent oil production tumbling.

Indonesia's imports of petroleum products have exceeded exports for several years and the country has been struggling to meet its current OPEC output quota of around 1.4 million barrels a day.

The country produced 961,200 b/d of crude oil in March, outpacing the 942,000 b/d in February, a level that analysts say had marked a 30-year nadir.

The panel also says a downgrade to "observer" status would help Indonesia maintain good ties with other OPEC members which could be extended to wider economic cooperation beyond oil, according to the document.

Continued OPEC membership, albeit in a diminished form, would also benefit Indonesia in terms of bilateral or multilateral support from OPEC countries during times of heightened political tensions at home.

The separatist insurgency in the northwestern province of Aceh hasn't waned; neither have the ethnic and religious conflicts in Maluku and Central Sulawesi.

Continued Indonesian membership would also help preserve OPEC unity.

"Even with such (a reduced Indonesian) status, OPEC unity hopefully can still be preserved, so that negative implications for oil prices can be minimized," the document cited the panel as saying.