RI seen struggling to lure oil investors

JAKARTA (JP): An executive of a major American oil company said on Tuesday the Indonesian government had its work cut out for it in attracting new investors to the country's oil and gas industry amid the monetary crisis.

President of Unocal Corp. John F. Imle told the 26th convention of Indonesian Petroleum Association (IPA) that the industry had been the engine of development for Indonesia in the 1960s and 1970s, and could serve an equally important role in fueling economic recovery in the crisis.

Imle suggested five major measures to reinvigorate the development of the oil and gas industry through the first decade of the next millennium.

The country should prioritize the creation of an environment that encourages investment, welcomes international competitiveness and supports the sanctity of contracts.

He said multinational firms and producers could take their pick around the world from numerous opportunities. The limited dollars ultimately go to the ventures that yield the highest risk-adjusted return.

"To compete successfully in such an environment, Indonesia must offer fiscal terms attractive enough to encourage exploration in remaining basins, promote the development of stranded or small hydrocarbon accumulations and cause the timely implementation of secondary methods."

While noting that Indonesia had done well in honoring contracts over the years, Imle said the consistency was recently tested with geothermal and gas payments during the crisis.

State electricity company PLN has defaulted on its payments to contractors, including Unocal.

Imle said the second challenge for Indonesia was accelerating the domestic use of natural gas.

He believed domestic gas production should replace pricier imported fuels such as diesel and coal in a gas-rich country like Indonesia. Gas is environmentally cleaner than fossil-fuel energy sources.

He noted that Indonesia lagged behind regional neighbors like Thailand, Bangladesh, Vietnam and India in promoting domestic utilization of natural gas.

"If I may be blunt, we often wonder about the import of subsidized diesel to Java for power generation almost within sight of gas flares in the Java Sea. And there is still gas being flared in East Kalimantan despite the presence of power plants and a refinery which still consume liquid fuel," Imle said.

"Now it's time to get it right."

Imle said the government should fully deregulate the oil and gas industry to enable foreign companies not only to develop oil and gas resources, but also to build pipelines or grids to directly distribute commercial energy to customers.

"Believe me, there are foreign pipelines, power and utility companies who are willing to invest in these infrastructure projects when Indonesia is ready to privatize, deregulate and remove subsidies."

He observed that the oil and gas industry should also continue to spearhead innovative technology to output.

The three-day convention through Thursday has drawn 2,000 oil and gas executives and experts from across the country and overseas. The convention mostly discusses latest developments in oil and gas technologies.

Competitive

Minister of Mines and Energy Kuntoro Mangkusubroto, who opened the convention, maintained that the country's oil industry was still globally competitive. He cited the fact that Indonesia remained the world's largest supplier of liquefied natural gas (LNG) with an export of 36 million tons last year.

He said the protracted monetary crisis and the undermining of investor confidence in the country had little effect on oil and gas investment. Both seismic and exploration drilling activities have substantially increased in the first half of this year over the same period last year.

Kuntoro promised that the government would continue to deregulate the oil and gas industry to maintain competitiveness on the global market.

"We are aware that competition is intensifying and we shall stay alert to ensure our investment policy remains attractive to the investor community."

Kuntoro said the government was drafting a law on gas and oil which would deregulate the industry and promote transparency and a competitive environment for the upstream and downstream sector to attract global investors. (jsk)