Again, oil and gas contractors in Indonesia urge the government to clean up bureaucracy (red tape) in this sector in order to make the investment climate more attractive, and hence trigger more (much-needed) investment in Indonesia's oil and gas industry.
Yanto Sianipar, Senior Vice President Policy, Government & Public Affairs at Chevron Indonesia, emphasized that the central government needs to tackle massive bureaucracy in Indonesia's oil and gas sector as this would also cut production costs for the investor. While oil and gas companies are investing heavily in technology to speed up production (as well as to enhance efficiency in the production process), bureaucracy causes long delays in Indonesia, especially as coordination and cooperation between the various government institutions (whether on the central or regional level) is seemingly weak.
Based on Government Regulation No. 35/2004 on Upstream Oil and Natural Gas Business Activities, an oil and gas contractor can obtain a 30-year contract (which can be extended twice, each time by ten years). However, the problem is that actual (commercial) production cannot commence immediately after the contract starts. In fact, it takes years between the detection of reserves and actual production.
Based on data from Indonesia's Upstream Oil and Gas regulatory special task force (SKK Migas), it can take 15 years to reach the production stage when it involves offshore oil and gas mining in East Java or Riau. For offshore oil and gas mining in East Kalimantan it can take up to ten years, while in the Moluccas it can take up to seven years.
Sianipar added that the BD field in the Madura Strait block took 30 years before commercial production started. Its natural gas reserves were detected in 1987 but only entered the production phase in 2017.
Key reason for this variety in figures across the regions is the difference in local regulations. However, if an investor can have a total contract duration of 50 years, but only about half can be used for actual production, then it is not appealing to investors. It is therefore vital that the government addresses this issue in order to attract more investment, hence the nation's energy supply increases. Moreover, the government can collect valuable (tax) revenues once oil and gas production starts.
Performance Indonesia's Oil & Gas Sector in H1-2017:
(in barrels of oil per day)
(in USD billion)
|• Upstream Investment
(in USD billion)
|• Downstream Investment
(in USD billion)
(in IDR trillion)
Source: SKK Migas
Budi Aguswidjaja, Vice President Sales and Commercial Affairs at BP Indonesia, also emphasized that - being a stakeholder in the oil and gas contracts - the government itself misses out on valuable income from the oil and gas sector if it fails to improve bureaucracy and regulations in this sector.
The permit processing times at Indonesia's Forestry and Environment Ministry as well as Transportation Ministry take a significant amount of time, Aguswidjaja said, and actually take a quite longer time than it takes at the Energy and Mineral Resources Ministry to process permits. However, considering the government is a stakeholder in these oil and gas contracts, the attitude at these ministries should change, resulting in a quicker pace of permit processing.
Another notorious issue in Indonesia is land acquisition. The difficulty to acquire land (the lengthy time and high price involved) is one of the key obstacles to investment projects in Indonesia. Sometimes this issue even cause the complete cancellation of a project.
Erwin Maryoto, Vice President Public & Government Affairs at ExxonMobil Cepu Limited, said his company still needs to acquire up to 4,400 m2 around its central processing facility at the Banyu Urip field (East Java). The problem is that the local landowner request a very steep price - IDR 1 trillion (approx. USD $75 million) knowing that below his land there exists an oil reserve. Maryoto urges the government or SKK Migas to assist investors when encountering such problems.
Permits in the Upstream Oil & Gas Industry of Indonesia:
• a total of 373 permits are required, 117 of which need to be obtained before entering the exploration stage.
• 53 of these permits need to be obtained at the City/District level, while 29 permits need to be obtained at the Provincial level.