Oil bill decried as only aiding foreigners

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)