Oil and gas investors warn of RI's waning attraction

The Jakarta Post, Nusa Dua, Bali

Oil and gas investors warned on Saturday of Indonesia's waning attraction and urged the government to improve regulations and the sector's fiscal environment to revive investor confidence.

The Indonesian Petroleum Association (IPA), which represents both domestic and multinational companies operating in the country's oil and gas sector, said Indonesia was rich with hydrocarbon deposits, but its abundance of natural resources would be rendered unattractive unless there was a conducive climate for investment.

They said the country should create a clear legal framework and fiscal environment, respect contracts and provide better contractual terms to attract new investment in the increasingly competitive global oil and gas industry.

"Investment is a balance between geology and fiscal terms, bureaucracy and regulatory framework," Nurman Djumiril, the chairman of IPA's regulatory affairs committee, said in his presentation during the "Dialog Forum of Stakeholders".

The forum, which was opened by President Megawati Soekarnoputri, was aimed at providing chances for oil, power and mining investors to air their concerns with the government.

Several ministers, including Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti, Minister of Energy and Mineral Resources Purnomo Yusgiantoro, Minister of Forestry M. Prakosa, Minister of Industry and Trade Rini Soewandi, Minister of Home Affairs Hari Sabarno, State Minister of the Environment Nabiel Makarim and the chairman of the Investment Coordinating Board, Theo F. Toemion, were present at the forum to listen to the investors.

The half-day conference was held in line with the government's pledge to create a better investment environment this year after the country saw many foreign investors pull their operations out of the country last year.

Thus far, players in the oil and gas industry, which is dominated by western investors, have rarely voiced their concerns, creating a misleading impression that the situation was fine, unlike the manufacturing sector, in which investors regularly air their complaints.

The industry contributed 29 percent to national revenue last year and saw investments of between US$5 billion and $6 billion in exploration and production activities during that period, Minister Purnomo said.

Although existing investors continued making investments in exploration and production activities, their interest in new contracts has apparently declined.

Last year, BP Migas signed only two contracts -- a new contract and an extension contract -- compared to 28 contracts in 1997 and eight contracts in 2001.

Investor interest in new contracts has been declining because many things remain "unclear", including the role of BP Migas, the new upstream authority established under the 2001 Oil and Gas Law to replace state oil and gas company Pertamina, Nurman said.

The investors also want "more interesting" contractual terms that assure greater rewards for investors, he said, adding that the investors also doubt if the government is really committed to respecting contracts.

With regards to the mining sector, Purnomo called on his fellow ministers to seek a comprehensive solution to the problems faced by many mining investors who could not continue their operations due to the 1999 Forestry Law, which bars open-pit mining in protected forests.

He said unless the problem was solved, Indonesia would lose the chance of attracting billions of dollars in investments.

"If overlapping land use and fiscal policy constraints did not exist, 50 mining companies would be willing to invest during the period of 2001 to 2005.

"Four of them would invest a total of $3.2 billion," he said.

Minister Prakosa said he would be consistent with banning open-pit mining operations in protected forests, but he was ready to review certain areas.