Oil bill decried as only aiding foreigners

JAKARTA (JP): Economic consultancy firm Econit Advisory Group declared on Wednesday the proposed law on oil and gas would only benefit foreign companies and backtracked on established gains.

Company director Arif Arryman said legislators would need much longer than a June deadline to study the "truth" of the proposed law to ensure the safeguarding of national interests.

He feared many negative aspects could be passed over due to the tight schedule.

"Amid the time constraints, (the House should not overlook) several (items of a) hidden agenda which could be harmful to the national and public interest in the long run."

He faulted the proposed change in the production sharing contract (PSC) system to what is known as a cooperation contract.

"The bill mentioned the cooperation contract only briefly and without details. But the contract is almost identical to the contract of work (COW) in the mining sector, which is very harmful to the national interest," Arryman said.

He said the PSC allowed the government to share in economic leases from oil and gas operations enjoyed by contractors. Under the COW system, contractors pay only tax and royalties to the government, both of which are much lower than lease payments received from the oil and gas sector.

"That is why many countries use the PSC system in the oil and gas sector to receive maximum benefit from their oil and gas resources," Arryman said.

He advocated the bill should explicitly oblige contractors to use PSC in the country.

The system was introduced by Pertamina's founding father Ibnu Sutowo in the early 1960s. Many developing countries have imitated the system.

Arryman also said the bill could harm the national interest through liberalization of the country's oil and gas downstream sector.

Under the bill, the government will lift the decade-long monopoly held by state oil and gas company Pertamina on the downstream sector and allow the private sector to build refineries and market their products on the domestic market.

Minister of Mines and Energy Kuntoro Mangkusubroto said the opening of the downstream sector was expected to force refinery owners, including Pertamina, to boost efficiency in competition with foreign refinery owners. It will produce competitive prices for fuel on the domestic market, which will be beneficial to consumers.

Arryman dismissed Kuntoro's view as misleading, given the fact there was no real competition in the world's refinery sector due to monopolies held by a few giant multinationals, including Caltex, Shell, Mobil and Texaco.

New enterprises are effectively barred from entering due to the huge investment needed for development of refineries.

"What will happen is the shift of the distribution and marketing monopoly from Pertamina to (foreign) private oligopoly. There is no guarantee (the free market) will boost efficiency and benefit consumers," Arryman said.

He believed private refinery owners will be more inclined to sell profitable fuel products in developed areas and the government will find it difficult to force them to sell their products to remote areas like Irian Jaya.

"It will be an irony in light of the fact that Irian Jaya is an oil-producing province," Arryman said.

The bill outlines changing Pertamina into a limited liability company, but Arryman proposed it be turned into a holding company with several subsidiaries, active in areas such as distribution and retailing fuel. Pertamina's shares should later be sold to the public.

He proposed that Pertamina's exploration and production unit be separated from the holding company and turned into a company in competition with foreign oil and gas companies. (jsk)