Special funds for oil and gas developments

JAKARTA. In a bid to ramp up national oil and gas production, the government is drafting a bill to revise the 2001 Oil and Gas Law and set aside a portion of state revenues from the annual production of oil and gas to fund the development of the industry.

The so-called “Petroleum Fund” would be used to finance capital expenditures for the construction of core infrastructure as well as for research and development, particularly in the gathering of data on oil and gas reserves to lure investors.

Approximately 5 percent of non-tax state revenues from the oil and gas sector would be allocated annually to sustain the fund, said Deputy Energy and Mineral Resources Minister Rudi Rubiandini.

The non-tax state revenue from the energy sector reached a total of Rp 352 trillion (US$37.3 billion) or 29.4 percent of the overall state revenues, according to the ministry’s website. Out of the Rp 352 trillion from the energy sector, Rp 272 trillion came from the oil and gas sector.

“If we want to make our oil and gas blocks appealing to the big fish [investors], we must ensure that we provide reliable data on potential reverses,” he told The Jakarta Post in an interview.

In the past 10 years, Indonesia managed to sell a total of 295 oil and gas blocks, with 10 blocks sold in the first semester of 2012, said the deputy minister. He added, however, many of the investors were not big players in the industry.

Formerly a Southeast Asian member of the Organization of Petroleum Exporting Countries (OPEC), Indonesia’s oil production has dwindled over the past couple of years. Indonesia’s oil and gas production was 2.4 million barrels of oil equivalent per day (boepd) in 2011, declining from 2.5 million boepd in 2010. Production was 2.3 million boepd in 2009.

Rudi, a former director of operations for the country’s upstream oil and gas regulator BP Migas, said the condition stemmed from the fact that until now, the state budget had never reserved funds specifically to support research.

“Approximately, we need a total of US$100 million to conduct a 3-D seismic study for one assumed oil and gas block,” he said.

Presently, there was no legal mechanism to allow for a specific budget allocation for oil and gas industry development, he said, while highlighting the fact that Indonesia’s newest oil refinery was build 17 years ago.

Indonesia has not built new refineries since 1994, when President Soeharto established state-owned oil and gas producer PT Pertamina’s refinery in Balongan, West Java. Currently, Pertamina has a total of seven refineries across the country, with a total of processing capacity of 1.15 million bpd.

The company’s data earlier this year showed Indonesia would experience a total deficit of 2.6 million bpd in 2025 even though two proposed projects, the extension of the Balongan refinery by Kuwait Petroleum and the Tuban refinery project supported by Saudi Aramco, have been pulled through.

Golkar Party lawmaker Satya W. Yudha, a member of the House of Representatives’ Commission VII on energy and natural mineral resources, told the Post the government and the legislators had been in talks to implement the new plan for the proposed 2013 state budget.

“We will continue to discuss the plan through October this year when we will begin the 2013 state budget deliberations,” he said.

Komaidi Notonegoro, the deputy director of the ReforMiner Institute, an Indonesian energy sector think tank, applauded the idea, but said that it would require strong political will because the plan would trim down the state budget allocation.

“Given that the oil and gas sector still contributes around 30 percent of the state’s revenues, I think the plan will need strong political will from both the government and the House,” he told the Post in a text message. (The Jakarta Post)