interesting article on upstream regulator and Regulatory issues in Indonesia Veteran official warns of nationalization in oil, gas Amahl

S. Azwar, The Jakarta Post, Jakarta | Headlines | Mon, December 03 2012, As Energy and Mineral Resources Ministry director general for oil and gas affairs Evita Herawati Legowo finally retired from her position, the 61-yearold pointed out that the rise in nationalist sentiment in society had now become the biggest challenge for the countrys oil and gas industry. Around two weeks before Evitas retirement, oil and gas industry players were shocked by the Constitutional Courts verdict on Nov. 13 ordering the dissolution of the upstream oil and gas regulator BPMigas, following a legal complaint from several nationalist individuals and organizations. Those parties, including Indonesias second-largest Muslim organization Muhammadiyah, said that the nature of BPMigas, which was formed in 2002 under the 2001 Oil and Gas Law, was unconstitutional and pro-foreign interests. The same group had also been pushing the government to hand over the gas-rich Mahakam block in East Kalimantan, currently operated by Frances Total, to state oil and gas firm PT Pertamina once its contract expired in 2017 again, using the vehicle of nationalism. Sometimes society thinks that everything must be nationalized just like in the Mahakam block case, but we must understand that we must be very careful in this business in measuring whether Pertamina is truly capable of taking over all these big projects at the same time, said Evita in an exclusive interview with The Jakarta Post on Thursday, a day before her retirement. Evita has been the nations spearhead for the oil and gas industry since she was named as the new director general in July 2008, taking over the job from Luluk Sumiarso when Purnomo Yusgiantoro was the energy and mineral resources minister. At the time, Purnomo, now defense minister, was lambasted for his performance in managing the countrys energy sector, leading him to reshuffle his senior officials, including Luluk, amid constant dwindling oil production since 2000, which eventually cost Indonesia membership in Organization of Petroleum Exporting Countries (OPEC) in 2008. As the ministrys expert adviser, Evita, who previously lost the election for the chairperson of the now-defunct BPMigas to R. Priyono, rose as a prominent candidate to take over the job. She remained in the position during the Democratic Party politician Darwin Zahedy Salehs tenure as minister from 2009 to 2011. She was supposed to retire in November 2011 but then was asked to continue her duties for another year. Evita acknowledged that the biggest challenge she had encountered a challenge that would also face her successor was to find a balance between creating an attractive investment climate for business players and meeting demands from society.

Given the nature of the upstream sector which is very high-risk, high-cost and high-technology all at the same time Evita said that not all companies would be able to invest in oil and gas, prompting the government to make its business atmosphere more conducive. We cannot force investors to keep pouring in money here if the situation is not favorable for them, while on the other hand, we must compete with other countries that also require investment, she said. The controversial 2001 Oil and Gas Law, according to Evita, had been very accommodating for the government as the nation would not have to spend a single penny when the oil and gas companies were still in the exploration phase of their concessions. The state would have to reimburse the companies that were successful at entering the production phase under the production sharing contract (PSC) scheme, which was still favorable for the government with a composition of around 85:15. However, some people who do not understand this scheme identify this as giving up our assets to foreign companies, Evita said. With that, Evita hoped the future oil and gas director general would be able to successfully deal with the pressure she had experienced, particularly ahead of the 2014 election, in which many groups would use the issue, as well as the subsidized fuel issue, as a bargaining chip. Petitioners behind the dissolution of BPMigas such as Indonesian Resources Studies (IRESS) director Marwan Batubara were keen for Indonesia to follow the example of Venezuela under Hugo Chavezs leadership, whereby he nationalized the oil-rich countrys oil and gas assets. When asked for his opinion regarding the matter, noted senior economist Fauzi Ichsan from Standard Chartered Indonesia said that the devil would be in the details should the government nationalize foreign assets. The government has to budget for it as approved by the parliament. Then there is the question of price acquisition, as well as the legal protection of these assets, which may allow the owners to take the government to international arbitration, he said in a text message. Energy and Mineral Resources Minister Jero Wacik told the Post in a text message that he was still mulling over who would replace Evita, but was unwilling to name any candidates or reveal when the new officer would be announced. Just wait and see, he said.