Kuntoro has tough task in securing House nod

Kuntoro has tough task in securing House nod

By Johannes Simbolon

JAKARTA (JP): Minister of Mines and Energy Kuntoro
Mangkusubroto will be traversing a rocky road over the next few
months in his quest to secure approval for the oil and gas bill
from the House of Representatives.

The bill, which was submitted to the House of Representatives
two weeks ago, contains many points which not all factions in the
House find agreeable and analysts say deliberation on the bill
could be tough and take a long time.

But Kuntoro is still optimistic the House will endorse the
bill in one or two months.

"I know many people don't feel comfortable with the bill. But
I am optimistic the House will endorse it in one or two months,"
Kuntoro announced on Thursday after a plenary session of the
House for the first deliberation of the bill.

The ministry tried to replace the existing oil and gas law of
1960 and the 1971 law on state oil and gas company Pertamina
several years ago but failed due to strong opposition from
various parties, including Pertamina.

According to Kuntoro, the House made the first call in 1994
for a new oil and gas law which was simple, to-the-point,
transparent and antimonopolistic to replace the existing oil and
gas laws.

Response

In response to the call, the Ministry of Mines and Energy
together with related ministries and concerned agencies and
organizations drafted a bill and submitted it to then president
Soeharto in 1996.

However, Kuntoro said Soeharto's administration dropped the
bill due to opposition from Pertamina.

The House called again for a new law in the wake of Soeharto's
downfall last year.

According to Kuntoro, drafting of the new bill started in June
1998 and involved many experts, representatives of various
governmental offices, local and international consultants of law
and finance, professional organizations, academics, legislators
and Pertamina.

The 46-chapter bill contains a number of points which analysts
say will fundamentally change the face of the country's oil and
gas industry.

First, it will lift the monopoly on the country's oil and gas
downstream sector awarded to Pertamina by the 1971 law. It will
also allow foreign enterprises to develop refineries and market
their products domestically.

Kuntoro has promised to gradually eliminate the government's
fuel subsidies by 2002 to encourage foreign investment in the
refinery sector.

Second, the government will take over the rights granted by
the 1971 law to Pertamina to award oil and gas exploration and
production contracts and to regulate and manage oil and gas
contractors.

The bill says the government will take over all the rights two
years after the bill is passed into law.

Pertamina currently regulates and manages oil and gas
contractors through a special division called Foreign Contractors
Management Body.

Third, the bill implies that oil and gas contractors may
choose types of contracts other production sharing contracts
(PSC) for operations. Today, the PSC system is obligatory.

Kuntoro said that by removing Pertamina's monopoly and
stripping it of its rights to contract private companies for
exploration and production and to manage and regulate them, the
bill aims to make the largest state company concentrate on its
core business as an oil and gas limited liability company in
competition with international oil and gas companies.

"The existing laws, in their 30 years of implementation, have
not promoted the dependency and ability of the state oil and gas
company.

"Besides, the state company is not orientated toward
empowering the people's economy and enhancing provincial
economies as it has to carry out a dominant social mission
assigned by the government," Kuntoro said in a news release.

The Golkar Party, the Armed Forces and the Indonesian
Democratic Party factions in the House welcomed the government's
initiative in proposing the oil and gas bill.

They agreed with the bill's objectives of removing Pertamina's
monopoly on the downstream sector and stripping the company of
its rights to award oil and gas contracts and to regulate and
manage the country's oil and gas contractors.

Corruption

They ascribed the rampant corruption, collusion and nepotism
in Pertamina during former president Soeharto's administration to
the company's monopoly rights and they expressed hope that with
the elimination of the monopoly the unfavorable business
practices could be put to an end.

Pertamina announced last year that it had awarded Soeharto's
family and cronies at least 159 contracts without competitive
bidding.

Pertamina has annulled and renegotiated most of the contracts
which it said caused the company huge losses.

The United Development Party (PPP) faction, however, stopped
short of supporting the bill's efforts to eliminate Pertamina's
monopoly on the downstream sector and the transferring of
Pertamina's rights to award oil and gas contracts, and to
regulate and manage oil and gas contractors.

It said there was no guarantee that a move would stop
corruption in the country's oil and gas sector.

"PPP is worried that the bill will only give another party the
opportunity to engage in corruption, collusion and nepotism in
the country's oil and gas sector," PPP legislator A. Walid said
during the House plenary meeting.

He said PPP wanted Pertamina's monopoly on the downstream
sector kept in place to keep fuel prices on the domestic market
controlled and affordable.

PPP also expressed concern about the possibility of many
Pertamina workers being laid off if the government takes over the
company's job of managing and regulating oil and gas contractors.

"PPP is concerned with the fate of Pertamina's workers, in the
possible transfer of status, position or lay-offs," Walid said.

Golkar wants Pertamina's monopoly to be removed gradually and
systematically instead of two years after the bill's enactment.

The party also proposed that the government maintain the
obligatory PSC system because it had "proven beneficial to the
government".

All factions regret that the bill barely mentions measures to
empower national oil and gas companies.

Some of them dismissed the bill as too liberal and said they
suspected Kuntoro had been too influenced by foreign companies in
drafting the law.

But Kuntoro denied any foreign influence.

"The bill was drafted by ourselves," he said.

He said on Friday that he would compromise with the House to
make for a "less liberal" law, provided that the House agreed to
remove all monopolistic practices in the law.

He also said he would agree to maintain the PSC system as long
as "it is considered beneficial to the government".