Much still to be done in oil, gas sector: IPA
The Jakarta Post, Jakarta
The government must work hard to provide legal certainty -- particularly in the area of tax regulations -- if it wants investment in the country's oil and gas sector, which has lately been on a declining trend, to pick up, an industry player says.
President of the Indonesian Petroleum Association (IPA) Christopher B. Newton said there at least were four main issues the government needed to address immediately in its efforts to accelerate investment in the sector.
"First, the government should seek the complete resolution of the value-added tax (VAT) issue that investors are facing, while (second) taking the opportunity presented in the new tax law to enhance fiscal certainty," he said during the first day of the association's annual convention on Tuesday.
Newton was referring to the tax incentive that the government has been giving to production-sharing oil and gas contractors in the country, which enables them to reimburse the VATs imposed on the equipment they use for exploration and production.
On a day-to-day basis however, the reimbursements are often delayed, creating uncertainty, Newton added.
His third and fourth points respectively were that,"the government should continue improving the coordination between related ministries and local administrations, as well as the partnership between investors and the sector's regulators."
The IPA is holding a three-day convention and exhibition here in Jakarta, which President Susilo Bambang Yudhoyono officially opened. Some 1,700 participants are expected to attend the event, which will showcase 96 exhibitors and include a series of discussions on the latest developments in the oil and gas sector.
Among the exhibitors are state oil and gas firm PT Pertamina, local energy firm PT Energi Mega Persada, as well as major foreign oil companies such as BP Indonesia, PT Caltex Pacific Indonesia, Chevron and ConocoPhillips. Speakers include Minister of Energy and Mineral Resources Purnomo Yusgiantoro and Chevron president David J. O'Reilly.
Newton further said that recent high oil prices alone would not be enough to attract investors to Indonesia as other countries had also increased their efforts to do so.
"The drive to attract foreign direct investment is significantly more competitive today," he said.
Newton said Indonesia's share of global upstream capital allocation had declined from 8 percent to 3 percent over the last five years, indicating its eroding competitiveness.
The IPA estimates that Indonesia's oil and condensate production will average this year some 1.06 million barrels per day (mbpd), a 2.5 percent decline from last year's output. Its gas production is still high at 8 billion cubic feet (bcf) per day, but below 1996's peak of 8.7 bcf. Without significant investments in production optimization, production from existing discoveries will decline by 50 percent in the next decade.
Speaking after Newton, President Susilo Bambang Yudhoyono said that the government was committed to providing a favorable investment climate in its efforts to boost the country's current 1 mbpd oil production to 1.3 mbpd by 2009.