As govt ponders, energy firms face uncertainty

JAKARTA. The government is remaining on the fence on decisions on renewing concession contracts, exacerbating the legal uncertainties faced by companies in the oil and gas sector.

With 29 concessions slated to expire between 2013 and 2021, policy makers have yet to provide any clear signals on what the government intends to do.

The most anticipated decision is whether to extend the current concession for the Mahakam Block in East Kalimantan after it expires in 2017.

The concession, which comprises around 30 percent of the country’s gas output, is jointly held by the local unit of France-based Total S.A. and Japan’s Inpex Corp. Total is the block operator.

Officials and politicians have been at loggerheads on whether to extend Total’s contract, given the sensitivity of foreign companies managing the nation’s oil and gas resources.

The Energy and Mineral Resources Ministry has indicated that Total would remain operator of the block, although it wants a participating interest to be given to local governments and to state oil and gas company PT Pertamina.

“Total has the technology to further develop the block, and they know the conditions there. We’re afraid that if Pertamina handles it, the company will have difficulties in providing not only the technology but also the financing,” said the secretary of the ministry’s Oil and Gas Directorate General, Edy Hermantoro, on Tuesday.

Edy’s statement follow a similar sentiment from Deputy Energy and Mineral Resources Minister Rudi Rubiandini, who said that the government was unlikely to exclude Total, as production would be threatened if the block was assigned to a new operator.

“We don’t want any disruption to the gas output. That’s why we’re being very careful in deciding the matter, as we should also consider various issues, including nationalism and financial and production sustainability,” Rudi said.

“The issue is now for Pertamina to negotiate with Total to operate the block. Maybe they can do it in turns, every two years,” he said.

The officials’ statements contradict those made by politicians who want Pertamina to be given a majority stake.

Lawmaker Chandra Tirta Wijaya, for example, who sits on House Commission VI overseeing energy, said: “We want Pertamina to have priority. It’s time for them to have a chance.”

Former vice president Jusuf Kalla agreed, saying that giving Pertamina the block would foster the “nationalist spirit” needed to manage the energy sector.

Pertamina upstream director Salis S. Aprilian has also backed the proposal, saying that the company should be involved in the talks, as the law required that expired concessions be returned to the state, which should give preference to the company.

“We’ve been proposing to get the block for sometime. We have the capability to operate it,” Salis said.

Rudi, however, made a plea for more time: “We hope to come up with a decision by December. We need to carefully consider the many factors at play.”

However, Satya W. Yudha, another lawmaker on Commission VI, said the government should immediately settle the issue, as it had created confusion that led to production at concessions to decline.

According to Satya, failure to make a prompt decision would lead current operators to delay the investment needed to maintain production until they received a clear sign that they would be given an extension.

The Mahakam quandary follows a similar case involving the concession given to US energy giant ExxonMobil for the oil-rich Cepu block on the border of Central and East Java. After almost two years of delay, during which the block was not developed, the government finally chose ExxonMobil over Pertamina to operate it in 2006.

The government has also been criticized for delaying its decision on renewing the West Madura Offshore concession in 2011. The concession holder, Korea-based Kodeco Energy, declined to augment the huge investments it had made during its initial award. The government rejected renewing the concession only days before it expired.

Indonesia’s oil output has declined to 881,000 barrels per day (bpd) in 2012, well short of the government’s target of 930,000 bpd. (Rabby Pramudatama/The Jakarta Post)