Too many uncertainties in oil and gas bill: IPA
Too many uncertainties in oil and gas bill: IPA
JAKARTA (JP): The lack of clarity in the new oil and gas bill,
such as in the case of sanctity of contract and market
deregulation, could cause uncertainties in the industry and
impede foreign investment inflows, the Indonesian Petroleum
Association (IPA) said on Monday.
"Investors hate uncertainty, any kind of change makes them
nervous," IPA chairman Bill Fanagan told The Jakarta Post
following a hearing with the House of Representatives's
Commission VIII, which, among other things, oversees energy
affairs.
He suggested that improvements be made in some areas of the
bill to ensure better certainty in the industry. "On the sanctity
of contract in particular, that there'll be clarity with respect
to the existing contracts and new contracts," he said.
Other questions, he said, concerned articles which called for
the establishment of regulating and executory bodies in the oil
and gas industry. The two bodies will replace the industry-
regulating role of the state oil and gas company Pertamina.
Under the new bill, the government plans to turn Pertamina
into an ordinary company and liberalize the oil and gas sector.
"Part of the government's job is to make sure that it's
clearly understood how the executory body will work and what its
authority will be," Fanagan asserted.
He said that companies were confused over the role of the
executory body when it came to signing oil and gas contracts.
Under article 11 of the bill, a company must negotiate the
terms of a contract with the minister, but must also arrange for
the contract's signing with the executory body.
"The law must ensure that there'll be no renegotiation with
the executory body," the IPA said in its presentation to
Commission VIII.
Legislators are currently debating the new oil and gas bill
which was submitted by the government earlier this year.
With the bill, the government hopes to replace two laws,
namely Law No. 44/1960 on the oil and gas industry, and Law No.
8/1971 on the state oil and gas company Pertamina.
Fanagan also called for more flexibility in the bill, saying
that it should allow the government to adjust rulings so as to
attract investment.
He proposed that the minister of energy and mineral resources
be granted discretion in some areas of the law.
"That allows the law to stay competitive on an international
basis, so he (the minister) may decide that the terms are too
tough, that they're not getting the investment that they want, so
what he'll do is make some adjustments to the areas where he has
the discretion to make it attractive to investment to continue to
come into the country," he explained.
Fanagan said a study showed that Indonesia was ranked among
the top 25 percent of countries with the toughest contract terms
in the oil and gas industry.
"That means it (Indonesia) has got the highest level taxation
in the industry," he said.
Although the study was issued about four to five years ago, he
added that little has changed since then.
Fanagan suggested the government strike a balance between
imposing tight taxation rules and attracting oil and gas
investments.
An alternative, he said, would be to provide incentives during
difficult political circumstances so as to continue to lure
investment.
"If they (the government) see investment starting to drop,
then they have to ask themselves whether it's just politics or a
combination of tough politics and tough fiscal terms that stop
investment," he explained.(bkm)