http://www.asiasentinel.com/index.php?option=com_content&task=view&id=5200&Itemid=226
Oil Companies Take Off the Gloves in Indonesia
Written by A. Lin Neumann
Friday, 22 February 2013
Chevron and Total publicly challenge one nationalist rule. Is it a trend?
The ongoing war of nerves between the Indonesian government and major
multinational oil and gas companies escalated this week as two of the country's
biggest energy providers publicly objected to a central bank rule requiring
exporters to channel all their earnings through local banks. The issue has
become more acute recently given the drop in the value of the rupiah against
the US dollar.
Both US oil giant Chevron and French oil company Total say the rule could
negatively impact future investment in the country and that it violates
existing production sharing contracts (PSCs) that govern their activities in
the country. The matter could end up in international arbitration if the two
sides cannot find a resolution.
Chevron had earlier told government regulators that the central bank
rules were among a number of issues threatening its investments in Indonesia.
"We are concerned with the [BI regulations] that have conflicted with the
spirit of the PSCs, as well as its impact on our investment risk," Chevron
Indonesia's vice president for government policy and public affairs Yanto
Sianipar said on Wednesday, according to the Jakarta Post.
Yanto said the firm was seeking a "win-win solution" but would not reject
arbitration, the Post reported. Chevron is the country's largest oil producer,
accounting for 45 percent of total crude production in 2012.
The fact that the companies are speaking out is a sign of worsening
tensions with the government on several issues. For the most part, the
multinationals have kept publicly quiet as the nationalism train has gathered
steam. That seems to be ending, as both Total and Chevron say they cannot
afford to put their revenues in local banks, where repatriation could be
delayed and bank charges will be incurred.
Multinational mining and energy companies have been under fire for months
over a variety of regulations designed to give the government more control over
extractive industries. Rising nationalist sentiment has conspired with
elections coming in 2014 to create a climate of distrust between the government
and several major companies that are facing contract renewals on concessions.
The result has been a major slow-down in investment plans for both energy and
mining, according to a number of foreign business executives. Behind the scenes
some companies question whether they should stay in Indonesia.
The government says it is time to redraw the organization chart
controlling energy and mining. For decades the government has used binding
multi-year concession contracts as a lure to get multinationals to invest
billions of dollars in mining and energy. While the revenue split and taxation
from the current system provide enormous revenues for the government, numerous
officials say they want the resource sector to be exclusively controlled by
local companies, even if that means a decline in production.
At the same time, the government is calling on the energy sector to
increase production in both oil and gas, which analysts say is unlikely to
happen if the major companies feel the rules of the regulatory game are
shifting under their feet. Crude oil production has been steadily falling in
Indonesia since 2000, when it reached 1.4m barrels a day, to 918,000 in 2011.
Gas production in the same period has gone from 63 billion cubic meters to 76
billion. The country is a net importer of oil.
"With today's contracts and way of working, it would be very difficult,"
Total E&P Indonesie's CEO Elizabeth Proust told reporters on Monday in
discussing the Bank Indonesia regulation. "It's not possible."
A 2011 Bank Indonesia regulation requires all companies to keep their
export earnings in local banks. It was intended to provide sufficient dollar
reserves to protect the rupiah. Oil and gas contractors were added to the rule
last October and they have until June 30 to comply.
Export permits can be suspended for companies that refuse to follow the
rule.
"For the time being, we cannot implement the regulations of the Bank
Indonesia and we have no plans to do so," Proust said this week, according to
the Jakarta Post.
Proust said the firm had been depositing around $2.5 billion per year in
domestic banks.
Total is Indonesia's largest liquefied natural gas producer, largely
though the Mahakam block in East Kalimantan. That block, which is due for
renewal in 2017, has been targeted by some nationalist groups who say it should
be given instead to national oil and gas company Pertamina. No renewal of
Total's concession has been agreed.
While Total's investment plans for 2013 remain intact, Reuters reported
that Proust said uncertainties over the Mahakam contract extension could impact
its future in the country. "For the time being we can still work, but in the
coming years it will be more difficult," she said.
Bank Indonesia's spokesperson Difi Johansyah told the Jakarta Post that
the central bank would insist on the June deadline for all firms, including oil
and gas companies. There is "not a single article of the government's PSCs
[that] forbade the central bank from regulating the record-keeping of
dollar-based export proceeds," Difi said.
Smaller energy players, including Conoco and PetroChina, have complied
with the regulation, the Jakarta Post reported.
An ExxonMobil Indonesia spokesman told the Jakarta Post the company is in
talks with officials on the banking rule.
ExxonMobil was also stung by regulators when it was told that its local
CEO, Richard Owen, would not have his work permit renewed. He was accused by
officials of being "uncooperative" on a number of issues, including development
of a major oil block.
ExxonMobil was recently in sensitive talks to sell some exploration and
production assets in Sumatra to an Indonesian company. The tender for the sale
was abruptly cancelled by the company late last year, reportedly because there
was political pressure brought to bear in favor of a certain bidder. After the
sale was dropped, Owen became a target of the energy ministry's anger
[Non-text portions of this message have been removed]
