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)