New incentives vital for oil, gas sector

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The government must renew the existing incentive package for oil and gas investors to help boost fresh investment into the sector, according to a consultancy firm.

James Brown of James Brown and Associates said on Wednesday that new incentives were necessary as oil and gas were getting more difficult and costly to find.

"Indonesia's upstream fiscal regime is generally recognized as being one of the harshest in the world.

"The 'easy' oil has been found and the going will get tougher," Brown said at the Indonesian Petroleum Association's 28th annual conference.

He said that companies would now have to turn to deep water and frontier areas to boost the country's oil production with greater cost and risk.

"Without any improvement on incentives, Indonesia will become less competitive than other countries (in attracting new investment)," Brown said.

He urged the government to establish a special fiscal regime for gas development projects in difficult areas.

Vice president of Gulf Indonesia Resources Supramu Santosa concurred.

"It's clear the current incentives will not be able to (help) boost oil output," he said.

He pointed out that the recent suspension of investment worth around US$1 billion in oil exploration was partly due the lack of incentives.

"We need nonconventional incentives," he said, without further elaborating.

The government's last incentives package was introduced in 1993, but since then the government has not taken the initiative to review the package.

The incentives include an oil production split of 65 percent for the government and 35 percent for investors, and a gas production split of 60 percent for the government and 40 percent for investors.

Director general for oil and gas Rachmat Sudibyo said the government welcomed any inputs to improve the country's oil and gas investment climate.

Rachmat said the government was committed to attracting investors in the oil and gas sector due to the sector's significant contribution to the economy.

He said, for example, that the new oil and gas law, passed in November last year and aimed at liberalizing the upstream and downstream oil and gas sector, was part of the government's commitment to providing a better investment climate.