Investors want review of laws on oil industry

Investors want review of laws on oil industry

JAKARTA (JP): PT Caltex Pacific Indonesia Chairman Haroen Al
Rasjid asked the government yesterday to review its laws
regarding both the upstream and the downstream oil industry,
saying they are no longer conducive to new investment.

Haroen told a seminar that fundamental changes to the law,
including the abolition of the industry's monopolistic nature,
would make Indonesia's petroleum industry more attractive to new
investors.

He cited the results of international research, including that
conducted by consultants Wood McKenzie, which show that oil
exploration in Indonesia has been declining since 1990.

"Only about 50 percent of the 80 exploratory wells planned to
be drilled in 1994 were completed," added the chief of Caltex,
the country's oldest and largest oil producer.

The trend is worrisome, he said, because oil production can be
sustained only by increasing the proven reserves and the proven
reserves can be increased only by exploration.

Haroen expressed concern that, without the discovery of a
significant amount of new reserves, the dreaded "doomsday" in the
oil industry might occur sooner than expected and Indonesia would
become a net oil importer.

He blamed the sharp, steady decline in oil exploration and
seismic surveys on the unfavorable regulatory climate for new
investments in the development of hydrocarbon resources.

"It is therefore high time for the government to review all
the existing laws on the petroleum industry and to make them more
conducive for new investments," he said.

The Oil and Natural Gas Directorate General has estimated
Indonesian proven reserves of hydrocarbon at 10.41 billion
barrels of oil and 114.2 trillion standard cubic feet of gas.

"But at an annual production rate of 600 barrels of oil and
2.5 trillion cubic feet of gas, those reserves will not last long
without additional reserves, especially because the fast-growing
economy is increasing the domestic demand for oil by five or six
percent a year," he said.

He considered a larger volume of exploration to be the only
effective answer to those challenges. But that will requires
greater investment which, in turn, will demand a much better
business climate, he added.

Haroen said the current production-sharing contract -- the
standard agreement under which foreign oil companies operate in
the country -- is no longer favorable, especially in view of the
competition for investments posed by other oil-producing
countries.

"The production-sharing contract stipulates only a
production/profit sharing scheme, but does not mention anything
about a risk-reward sharing concept," he said.

Haroen argued that the product/profit-sharing arrangement is
effective only after the start of commercial production, while
the greatest risks are faced during the exploration work.

He said additional incentives are even more crucial for
exploration and development in the frontier areas in Indonesia's
eastern provinces, where infrastructure and trained labor are
extremely scarce.

"In 1994, for example, only five exploratory wells were
drilled in eastern Indonesia, where most of the 60 sedimentary
basins already identified with potential oil resources lie," he
added.

Haroen added that better investment incentives have now become
much more important as Indonesia faces keen competition from
other oil producing countries which offer better packages to
foreign oil companies.

He estimated that, given the special characteristics of the
oil industry -- capital and technology intensive and highly risky
-- foreign investors will continue to play a dominant role in
Indonesia's hydrocarbon development for the foreseeable future.

The one-day seminar on energy, organized by the Foundation of
the Indonesian Institute for Energy Economics, also presented
economist Hadi Soesastro and energy experts A. Arismunandar,
Soetarjo Sigit, Suryono and Mohammad Ridwan as panelists.

Subroto, former secretary-general of the Organization of
Petroleum Exporting Countries and former Indonesian minister of
oil and energy, opened the seminar in his capacity as the
chairman of the foundation. (04/vin)