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".