http://www.asiasentinel.com/index.php?option=com_content&task=view&id=5148&Itemid=226
Indonesia Tightens the Screws Again on Foreigners
Written by Our Correspondent
Tuesday, 29 January 2013
Sunset for big oil in Indonesia?
Trade wars increasing over cars, apples, wheat and animal products and
more
In a country where court decisions often seemingly have little to do with
the matter at hand, it is tempting to suspect a certain choreography behind the
Indonesian government's attempts to assert its hegemony over multinationals
operating in the country's energy sector, and that such attempts stem from a
government policy to take over a much wider spectrum of investment and commerce
through nationalist industrial policy.
That is a policy that has delivered discomfort to countless nations that
have tried it. Nonetheless, Indonesia appears to be doing exactly that, with
import substitution spats going with at least five countries.
"A lot of this, don't forget, is about creating a lot of confusing
regulations that may never really be well understood or implemented," said a
Jakarta corporate advisor. "That leaves open a lot of room for shaking down
companies that might run afoul of confusing regulations."
In the case of the oil industry, months ago a consortium of 42
organizations and individuals brought suit in the Constitutional Court to
review the 12-year-old law that brought Indonesia's upstream gas regulator into
effect, a case that moved smoothly through the system.
The plaintiffs included Muhammadiyah, one of Indonesia's largest Muslim
groups, and business organizations, many believed to be closely aligned with
the government, and particularly with Hatta Rajasa, the 59-year-old
coordinating minister for economic affairs and an official with presidential
ambitions.
Under the terms of the 2001 law, BPMigas'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. The court ruled
on Nov. 13 with immediate and final effect, throwing the sector into confusion,
although it's clear that President Susilo Bambang Yudhoyono saw it coming.
On the same day, SBY issued Presidential Regulation 95, transferring
BPMigas's powers and responsibilities to the Indonesian Ministry of Energy and
Mineral Resources.
Within a month, BPMigas and its chairman, Raden Priyono, who was thought
to be too friendly with the companies he regulated, had been replaced by
SKMigas, headed by Jero Wacik, the energy and resources minister. In early
January, Jero in turn let it be known that Richard J. Owen, the chief executive
of ExxonMobile Indonesia, had in effect been kicked out of his job over refusal
by the US oil giant to divest itself of gas fields coveted by Indonesian
companies.
Along with a campaign to arrest Chevron Indonesia officials over what
appeared to be trumped up charges over an environmental remediation project,
that has generated considerable legal uncertainty over the future not just of
the oil and gas sector but a whole range of multinational investment and
services including beef, soyabeans, cars, oil and mining.
"On a range of products and issues, the drumbeat of protectionism is now
constant and there is very little pushback from anyone," said a Jakarta-based
source with connections to the government. "The Indonesians act like they want
to pull up the drawbridge." But little of it appears to be ideological and the
odds are still that if companies and investors wait it out, once the rent
seeking and jockeying for the 2014 presidential race is over, the country will
get back to normal and want to do business again.'
Not content to wait, the United States on Jan. 10 notified the World
Trade Organization of a request for consultations with Indonesia over growing
restrictions on imports of horticultural products, animals and animal products.
The request formally initiates a dispute within the WTO, according to a press
statement on the WTO website.
The Indonesians are reportedly restricting beef imports in an effort to
drive up the price of local beef on the theory that rising prices would spur
development of a domestic beef industry. Also in dispute are apples and
vegetables.
Indonesia's Trade Minister Gita Wirjawan told Reuters the government was
"preparing materials" and will communicate directly with the US about the trade
issue.
"We will prepare all the needed steps to resolve these problems," he said
in Jakarta. Somewhat embarrassingly, at a time when the country is turning
towards a self-sufficiency economy, it has fielded a candidate to head the WTO
itself. The country is also separately being challenged by Australia, Turkey
and Sri Lanka over a 20 percent emergency tariff on wheat flour.
Indonesia has been a multinational investor favorite since the onset of
the global financial crisis. As the rest of the world crashed, gross domestic
product remained in positive territory and has been there ever since, built on
a big domestic consumer market and exports of natural resources including coal,
palm oil and timber, much of to China. However, the country risks turning
investor sentiment against it at a time when commodity prices of Indonesia's
major exports have started to dive. For instance, palm oil prices, now at
US$2,238 per tonne, are 46 percent off their cyclical high and look like they
could fall further. Copper has fallen 19.9 percent from its high, China coal --
Indonesia's major coal partner -- is off. 8.7 percent.
As Asia Sentinel reported on Jan. 11, the investment climate is growing
so hostile that both Chevron and ExxonMobile, which have been operating in
Indonesia for decades, are growing fed up with policy shifts and the climate of
hostility toward multinational companies. Executives say they are confused and
worried over the future but are concerned about speaking out for fear they will
be forced out of the country as well. Chevron warned SKMigas that the
deteriorating investment climate could lead to lower future investment by the
company, which has been operating in Indonesia since 1952 and is the country's
largest oil and gas producer.
The question is when this is going to come back to bite the country in
terms of access to technology and international fund flows into the country.
Indonesian companies have shown little aptitude in building anything on their
own. Last May, for instance, BPMigas head Priyono in a report told the
Indonesian House of Representatives that only five of the 56 companies
operating on production-sharing contracts in the country had been able to meet
their designated targets.
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