Riau province to jointly own CPP's oil block

By Haidar Anwar Tanjung

PEKANBARU, Riau (JP): The planned establishment of Riau Petroleum by the provincial administration of Riau marks a new stage in its fierce battle with Jakarta for control over the Coastal Plain Pekanbaru (CPP) oil block currently operated by PT Caltex Pacific Indonesia.

The company will be jointly owned by the provincial administration and the administrations of Siak, Bengkalis Palalawan and Kampar in whose areas the oil wells are located.

The development followed a recent standoff when the local administration threatened to blockade the oil fields should the Jakarta deny them the opportunity to operate the resources. The fact that the contract authorizing PT Caltex Pacific Indonesia to exploit the "black gold" is expiring within a month, is adding to the tension.

Joining the fray are companies jealously eyeing the bounty -- as more than 2 billion barrels of oil reserves are yet to be tapped from under 30 fields and 300 wells.

Riau demanded that it be given 70 percent equity stake in the joint venture that will operate the CPP oil block. The government turned this down, reiterating that Riau was entitled to only 10 percent.

Governor Saleh Djasid recently vowed to continue the fight for a bigger share. The government has said its decision to give Riau a 10 percent stake in the CPP oil block is final; the remaining 90 percent stake would be held by Jakarta through state-owned oil and gas company Pertamina.

Under production-sharing contracts, oil companies receive only 15 percent of an oil block's entire production. In the case of the CPP oil block, the 15 percent share of its production will go to the planned joint venture and the other 85 percent to Jakarta.

Of the 85 percent, Jakarta receives 85 percent as stipulated in the intergovernmental fiscal balance Law No 25/1999; 15 percent of which will be allocated to the provinces where the oil fields are located. So on top of the 10 percent Riau gets from the joint venture which would operate the CPP oil block, it will receive another 15 percent from the government's share.

The government has said it plans to offer Riau incentives to compensate it for its small equity interest in CPP; these include the possibility for Riau to export the oil it gets from its stake in CPP.

All companies must now sell their crude oil and gas through Pertamina, which holds monopoly over oil and gas distribution. Other incentives include the granting of three oil fields to Riau as a "training ground" for the province's oil and gas industry.

Caltex, a joint venture of American-based oil companies Chevron Corp. and Texaco Inc., is the country's largest oil producer, producing about 70,000 barrels of crude oil per day at the CPP oil block.

The government had agreed in 1999 the reappointment of Caltex and Pertamina to jointly operate the oil block but the decision was annulled after then president Abdurrahman Wahid unexpectedly bowed to Riau's demand to take part in the management and operation of the oil block.

Riau's struggle for a bigger share intensified when Governor Saleh Djasid set up a team three years ago to persuade Jakarta and Pertamina to surrender the majority equity stake. Some Rp 700 million was spent for this particular team's fight, to no avail.

A number of follow-up efforts by the Riau administration's team with Abdurrahman and other officials also flopped.

Local legislators, including Chaidir, believe that it is now their turn to take up the fight to win Riau the bigger share in the deal. Setting up yet another team of negotiators, they appealed for support from formal teams and NGOs to secure their claim. The team's chairman, Thamrin Nasution, a Golkar Faction member, said "we need quite a lot of money to fund our struggle and the funds were derived from the routine budget, but we were not yet able to provide details on the amount needed." Reluctant to give figures, he added "each struggle requires a sacrifice."

Thamrin said the CPP oil field management was a politically tainted issue which must be addressed in a political and business-like manner. He attributed earlier failures to poor negotiation skills of the previous team. However, Thamrin's team is also aiming for 20 percent of equity stake from the 85 percent share held by the central government.

Thamrin said he was aware the 20 percent claim contradicted the oil and gas law, but promised to push ahead. He referred to the new fiscal policy, Law No. 25/1999, which entitles provinces to greater shares in natural resources management.

"The oil and gas law indeed makes it harder for us to (control) the oil fields. So we are aiming for a presidential decree that will give us the right to manage the oil fields, that is the bottom line," he said. Many here believe the fight is justified, given the years of plundering of their natural resources by Jakarta and other parties.

Local legislative council (DPRD) speaker, Soeratno AD of Golkar said "Caltex pumps some 700,000 barrels of oil per day but only contributes Rp 3 billion annually to the local administration". Last year, Caltex contributed US$4.5 billion or Rp 42.3 trillion to the state's coffers.

The lucrative wells in the province have lured not only international but also domestic companies. Old hands such as Korean oil, Petronas Malaysia, China oil and Caltex, along with national entities like Petra oil, Medco (owned by Arifin Panigoro), Setco (owned by Setiawan Djodi) and Kondur Petroleum (Bakrie Brothers' group) are vying for the oil there.

But when commenting on the possibility of Caltex's contract being extended for another year, Soeratno said the Riau administration and DPRD could do nothing but accept the deal. "We will fight again after the contract expires" .

A local public figure, Al Azar, said if the team failed in the fight for their rights, they would resort to a blockade of CPP oil fields.

"It would be a lot better if we put the mining operation to a stop; that is no bargaining," he said. "Look how the Riau people remain poor despite the fact that their land possesses such an abundance of natural resources." Soeratno, however, frowned upon the threat, saying it would harm the people themselves.

Of no less importance is that the fight for the oil fields straddling across Siak, Bengkalis and Pelelawan regencies, is fast spreading. Each regency claims its rights over the oil.

"It is really funny that the local administration insists on securing the CPP oil fields; it's the Siak regency that deserves most," Said Muhammad, the speaker of Siak regency said.

Caltex has meanwhile acknowledged that their contract extension was approved by Pertamina in mid-June 2001. Public relations officer Poedyo Oetomo said, "as long as the fields are economically profitable, Caltex will bid for another term."

The writer is a freelance journalist in Pekanbaru, Riau.