Security, tax keys to oil and gas investment: BP Migas

Security, tax keys to oil and gas investment: BP Migas

A'an Suryana, The Jakarta Post, Jakarta

The oil and gas upstream authority, BP Migas, warned on Monday
that oil and gas investors would remain reluctant to apply for
new contracts unless the government was able to resolve their
security and tax concerns.

The government needed to assure investors that the business
environment in Indonesia was attractive and free from
uncertainties, said BP Migas' chairman Rachmat Sudibyo.

"An attractive business climate is a must for investors,"
Rachmat told The Jakarta Post.

He was commenting on concerns aired on Saturday by the
Indonesian Petroleum Association (IPA), which pointed out that
Indonesia's abundance of natural resources would be rendered
unattractive unless there was a conducive investment climate.

The number of new contracts, which is the benchmark for oil
and gas investors' interest in Indonesia, has dwindled over the
past few years. Last year, for example, the newly established BP
Migas signed only two contracts -- a new contract and an
extension contract -- compared to 28 contracts in 1997 and eight
contracts in 2001.

Security has been tipped as one of the main problems
discouraging investors from entering or expanding their
operations in Indonesia. Extortion targeting oil companies, for
example, has been on the rise in the oil rich area of Aceh,
something that has cost the firms dearly.

The unattractive tax system is seen as another discouraging
factor.

Ramses Hutapea, an oil and gas observer, said separately that
the government must review its new tax policy as it had placed a
heavy burden on investors. Otherwise, investors would be
reluctant to continue prospecting for oil and gas.

Ramses said that under the new tax policy, investors had to
pay customs duties on imported drilling, wellhead and prospecting
equipment.

"This is silly. Even before the firms start prospecting, they
must pay tax. It will cost them dearly. Moreover, the investors
might fail to find oil or gas," Ramses told the Post.

Ramses suggested the government consider reinstituting the old
scheme under which oil and gas firms only had to pay for customs
duties after the prospecting stage had been completed.

He said that this kind of incentive could help encourage
investors to embark on new oil and gas prospecting ventures in
Indonesia.

Aside from security and tax matters, Ramses added that the
unattractive legal framework had also been a discouraging factor
for investors.

The oil and gas law of 2001 has complicated the difficulties
in the oil and gas sector, according to Ramses.

He said that under the law, contracts were awarded by the
government as the holder of mineral rights, while BP Migas served
only as the signatory of the contract, and as a supervisor and
regulator overseeing the contractors.

This, he said, had created uncertainty in the sector.

"If there is a dispute, investors cannot sue the government,
as it is a sovereign rather than a legal entity," Ramses said.

Prior to the introduction of the new oil and gas law,
Pertamina held the mining rights, awarded contracts, and
supervised and regulated the contractors. Contractors felt
securer as Pertamina had assets that could be seized in cases of
dispute.

An official has said that attracting new investments to the
oil and gas sector was of paramount importance considering the
critical role played by the industry in generating revenue for
the government.

Last year, the industry contributed 29 percent of state
revenues and produced investments of between US$5 billion and $6
billion in prospecting and production operations.