http://www.thejakartaglobe.com/business/bpmigass-dissolution-might-hurt-future-investment-analysts/556087
BPMigas’s Dissolution Might Hurt Future Investment: Analysts Tito Summa Siahaan | November 14, 2012 Following a ruling by the Constitutional Court dissolving oil and gas regulator BPMigas on Tuesday, some industry executives and analysts are worried that the verdict might curb revenue from crude oil and gas exports and hamper future investment in the sectors. 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. “If the Constitutional Court declared us unconstitutional, so too the contracts that we signed. That is just logical because I’m no expert on law,” he added. The court ruled that the role and responsibility of BPMigas violated Article 33 of the Constitution, which states that resources should be controlled by the government. The ruling also stipulated that regulatory powers held by the agency will be returned to the government until a new regulation is issued. The decision is effective immediately, the court said. BPMigas employees were seen clearing the agency’s office in South Jakarta on Tuesday afternoon. “BPMigas only controls and monitors management on oil-gas and does not directly manage them because exploration and exploitation of oil and gas are in the hands of state companies and private companies,” the ruling announced. “The court views the relation between BPMigas, as representative of the state, and companies in oil and gas management as degrading the meaning of state control over oil and gas resources.” Under the 2001 law on BPMigas, the agency was tasked with granting rights on production-sharing contracts to oil and gas producers to explore for oil and gas in Indonesia. The country is Southeast Asia’s biggest oil producer and is the world’s second-largest liquefied natural gas exporter. The court in its summary of the decision said that existing contracts with oil and gas companies will be honored. However, Priyono said that ongoing negotiations with foreign investors, including the 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. The court approved a request by 42 organizations and individuals to review the 2001 law, including Muhammadiyah, one of Indonesia’s largest Muslim groups, and business organizations. Major oil and gas producers in Indonesia are controlled by foreign investors, including Chevron Pacific Indonesia, Total EP Indonesie, ConocoPhillips and BP. Pertamina EP, the exploration unit of Pertamina, and Medco Energi Internasional are among a handful of Indonesian oil companies. Medco Energi, the largest listed oil company, rose 0.7 percent to Rp 1,560 in Jakarta trading on Tuesday. Priyono rebuffed the court’s accusation that the agency has acted in the best interest of foreign investors. “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. Response from the country’s oil and gas companies was mixed, with many of them tight-lipped on the latest ruling. “I cannot give any comments,” Budiman Moerdijat, government and regulatory affairs manager for BP, said in a text message. 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.” Officials at Total, Chevron Pacific Indonesia were not available to comment. James Castle, the US founder of consultancy firm CastleAsia, said the court’s ruling will hurt investment. “We’ll have to see the reasoning of the court. It will definitely create uncertainty, which always hurts the economy and slows investment,” he said in a text message on Tuesday. Castle is a former chairman of the American Chamber of Commerce in Indonesia. Energy and Mineral Resources Minister Jero Wacik said the government will abide by the court ruling but has yet to determine its next step. “I haven’t fully read the decision, but surely we cannot make any hasty decision as this is concerning the national interest,” he said. “But we must determine the consequences of this ruling. We must put into consideration the country’s investment climate, which we have to protect.” Kardaya Warmika, BPMigas chief from 2005 to 2008, said the Energy Ministry should assume the authority and responsibilities of the agency. “It would be much simpler than handing the authority back to state-owned enterprises like Pertamina, which means that the firm must amend its charter should it happen,” he said. BPMigas’s Priyono said the latest verdict may risk Rp 1 trillion ($103 million) per day in state revenue from oil and gas. The agency said last month on its website that it expected to bring in $34.9 billion in oil and gas revenue this year, more than the $33.5 billion stated in the government’s budget. BPMigas collected $35.8 billion in revenue from oil and gas last year. Its website was down on Tuesday. BPMigas also said in October that oil production might fall short of this year’s target. Oil output reached about 903,000 barrels of oil per day last year, less than the 945,000 bpd that had been targeted in the state budget. Oil production hit a peak of 1.6 million bpd in 1995 as part of the so-called “oil bonanza” era. Hadi Prasetyo, head of public relations, security and formalities division at BPMigas, said employees at the department will be at work today. “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. [Non-text portions of this message have been removed]
