Oil and gas draft law draws mixed reactions

JAKARTA (JP): The oil and gas draft law which will lift the decades-long monopoly held by state oil and gas company Pertamina has received a mixed reaction from analysts.

Analyst Bachrawi Sanusi said the bill, which is awaiting approval by the House of Representatives, contained a number of weaknesses and the House should reject it.

"A monopoly is not bad as long as it is held by state companies, which differ from private companies in that they prioritize the public's interests over profits," he told The Jakarta Post.

He proposed the existing 1971 law on Pertamina remain in effect, with several modifications to promote the company's independence from the bureaucracy and to provide it with enough funds to finance its upstream activities.

He said the rampant corruption which tainted Pertamina's image over the past several decades was caused by the interference of government officials in the company's business.

He also said Pertamina performed poorly in its core business -- exploration and production -- because it lacked financing, with most of the country's oil and gas revenues being taken by the government.

He added that the government also obliged the company to handle several unprofitable businesses for the benefit of the public.

T.N. Machmud, a lecturer at the University of Indonesia, however, praised the bill as "a breakthrough" which would give Pertamina the chance to compete against foreign oil and gas companies.

"The bottom line of the bill, which I am in favor of, is that a monopoly is always bad and competition will improve quality," Machmud told the Post.

Machmud agreed with Bachrawi that the main reason behind Pertamina's poor performance over the past several decades was the government's interference in the company's business.

"With the bill, Kuntoro wants to keep the government out of Pertamina and let it concentrate in its core business," he said.

Machmud said Pertamina accounted for 10 percent of the country's oil output of 1.5 million barrels of oil per day (bpd) in 1975. Today, the country's oil output remains at 1.5 million bpd, but Pertamina's contribution has dropped to less than 4 percent.

In comparison, Malaysia's state oil and gas company, which began operations much later than Pertamina, currently accounts for 30 percent of the country's oil output. The company has also invested in dozens of countries across the world, he said.

The new oil and gas bill will also open the downstream sector, which is currently monopolized by Pertamina, to private investment. Private investors will be free to develop their own refineries and retail their products in the country.

Bachrawi believes that fuel distribution, which has remained secure and stable under Pertamina's control, will be jeopardized under the free market system.

"Do you think private refineries, which only look for profits, will be willing to sell their fuel in unprofitable locations like Irian Jaya? Do you think private companies will be willing to produce fuel amid the depressed oil prices," Bachrawi asked.

"Trust me, if the free market system is introduced, we shall often experience fuel shortages," he said.

The bill, a copy of which was made available to the Post on Monday, will also allow oil and gas companies to choose a contract other than a production sharing contract (PSC), which is currently obligatory, for their operations.

Bachrawi and Machmud believe that oil and gas companies will choose a type of contract which will allow them to operate independently, rather than a PSC which gives Pertamina the right to manage contractors.

Bachrawi proposed that PSCs remain obligatory.

Machmud said the PSC system, which was first introduced in Indonesia and had been copied by many countries, was not a bad system, but investors complained about Pertamina's "heavy-handed" management.

"The PSC system is good, but its implementation needs some changes," Machmud said.

Machmud, however, said that he had no reservations with allowing oil and gas companies to choose other types of contracts other than a PSC, as long as "we are able to lure investments and delay our country's becoming a net oil importer." (jsk)