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.