http://www.asiasentinel.com/index.php?option=com_content&task=view&id=4972&Itemid=226
Regulator
Indonesian Court Shuts Down Oil and Gas Regulator
Written by Our Correspondent
Wednesday, 14 November 2012
May have to take off the BP flag on this one...
Economic Nationalism claims another scalp
Indonesia’s Constitutional Court Tuesday ordered the country’s oil and
gas regulator BPMigas to shut down, throwing international energy investors
into confusion and raising concerns that the verdict could curb revenue from
crude oil and gas exports and hamper future international investment.
The suit was brought by 42 organizations and individuals to review the
2001 law that brought the regulator into effect. The plaintiffs included
Muhammadiyah, one of Indonesia’s largest Muslim groups, and business
organizations.
Under the terms of the 2001 law, BP Migas’s job was to grant rights on
production-sharing contracts to oil and gas producers to explore for oil and
gas. Most of those contracts are with multinational producers.
“What this is about I think is a desire by the economic nationalists –
and there are a lot of them -- to get all the oil and gas back under the
control of Pertamina (the state-owned energy company) and to force the foreign
companies to enter into deals with Pertamina,” said a Jakarta-based western
consultant.
The court declared that the existence of the regulatory agency degrades
state control over natural resources and was therefore unconstitutional since
BP Migas didn’t directly manage oil and gas, instead handing it over to
state-owned companies or private companies through cooperation contracts. That
mechanism, the court held, limits access for the state to maximize the benefits
of natural resource management for people’s welfare.
Because major oil and gas producers in Indonesia are largely controlled
by foreign investors, including Chevron Pacific Indonesia, Total EP Indonesie,
ConocoPhillips and BP, the decision is regarded as a blow to their operations.
The decision is the latest in a growing series of actions by the
government or the courts that appear designed to limit the participation of
foreign companies in Indonesia’s economy. The hostility to foreign control of
Indonesian natural resources has largely been aimed at mining companies,
through regulations such as a ban in April on unprocessed metal-ore shipments,
with an exemption for producers that process output inside Indonesia. New
trading curbs similar to rules on tin dating from 2002 will apply to exports of
14 metals, including iron ore, manganese, gold, silver and copper. Exports will
be limited to refined exports only, forcing more value added production with in
Indonesia.
Other actions have been taken against rattan furniture producers.
The eventual target is thought to be to ultimately drive companies like
the US-based mining giant Freeport McMoRan, which operates the world’s biggest
copper and gold mine in the Sudirman Mountain Range in Papua, out of ownership
altogether, and to hire them back as fee-based contractors.
Nor is it just aimed at companies involved in natural resources. Also in
April, the government announced that a government-linked company, the
Indonesian Ports Corporation, would take on the monumental job of building a
US$1.9 billion new port at Tanjung Priok in North Jakarta. It is arguably the
biggest infrastructure project in Indonesia’s history and one of the biggest
port projects in the world.
The government had previously cancelled a tender for the container
terminal, which outraged international private-public consortia that had
devoted considerable funds into preparing the bids only to see them thrown out.
As with the BP Migas decision, there seems to be a growing sense in the
country that Indonesia ought to own its own resources and negotiate fees to
multinationals to operate them, which in turn should be a warning to investors.
Buoyed by foreign direct investment, which rose by 30 percent in the
first three months of 2012 as foreign multinationals have swarmed into the
country, it appears that economic nationalism is reaching new heights.
Raden Priyono, chairman of now-defunct BPMigas, told a media conference
in South Jakarta that the ruling would affect investments in the oil and gas
sector, risking as much as Rp1 trillion ($103 million) per day in state revenue
from oil and gas.
“If the Constitutional Court declared us unconstitutional, so too are the
contracts that we signed. That is just logical because I’m no expert on law,”
he added.
Although the court in its summary of the decision said that existing
contracts with oil and gas companies will be honored, Priyono told the press
conference that ongoing negotiations with foreign investors, including a
proposed $12 billion investment by British resource giant BP for the expansion
of a liquefied natural gas facility in Papua, were halted due to the court
ruling.
“Starting tomorrow, we will not hold any more talks,” Priyono said.
Priyono disagreed with a statement by the court that BP Migas was acting
in the interests of foreign investors rather than domestic interests. “They
said BPMigas is in favor of foreign companies, but they are already here long
before we were established. BPMigas is merely protecting the investment climate
with fairness,” he said.
“I cannot give any comments,” Budiman Moerdijat, government and
regulatory affairs manager for BP, said in a text message to The Jakarta Globe.
Erwin Maryoto, vice president of public and government affairs at ExxonMobil
Indonesia, said: “We are aware of the situation, we are monitoring the
development and have no other comment to make at this time.”
Hadi Prasetyo, head of public relations, security and formalities
division at BPMigas, said employees at the department will continue to be at
work despite the order to disband.
“We will continue working, the wheel must keep going. We hope to see an
immediate decision from the Ministry of Energy and Mineral Resources,” he said.
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