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Vol. 224 No. 5 |
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| TONY SITATHAN, CONTRIBUTING EDITOR, SOUTHEAST ASIA |
Indonesia not necessarily hazardous to foreign investors. An unforgettable day for Indonesia was October 12, 2002. A series of bombs ripped through several popular nightclubs in Bali, killing at least 180 people and injuring more than 430 others.
What does this have to do with E&P? Well, besides killing, maiming and bruising innocent people in Bali, Indonesia’s overall investment image lies permanently scarred. Investor confidence has hit rock bottom. Indonesia is no longer viewed as safe for tourists and businessmen.
Singaporean businessman Benjamin Teo, who had been based in Bali for the past 10 years, calls this a rude awakening to terrorism’s realities. “Indonesia has had a terrorist risk premium attached to it ever since that attack, and foreign investors are cautious about investing in new ventures,” he noted.
The Al Qaida terrorist threat was seen as alien to Indonesia, whose Muslim population is more than 90% of its 220 million people. Nevertheless, Indonesia did become a bloody target for terrorism. According to Rick Griffin, first secretary of Australia’s Political and Economic Section in Thailand, the Bali bombings showed that no Asian economy is safe from terrorism. “It’s better to be safe than sorry, and better to be extra cautious and proactive in enforcing good security measures rather than take a risk,” he said.
The bombings caused a rippling effect on several national economic layers, including oil and gas. A large multinational oil firm based in Indonesia for the past two decades is having second thoughts about expanding operations. “The oil and gas sectors are hard-pressed for direct foreign investments, which have fallen by as much as 12%, especially in exploration funds for most of 2002 and into 2003,” said Agus Widjaja, a senior consultant with the Ministry of Mines and Energy. “We have seen a slide in foreign investments ever since 1997.”
Even before the Bali bombings, there was evidence that foreign investments were slowing. According to the Investment Coordinating Board (BKPM), foreign direct investment approvals plummeted 35%, to $9.7 billion for 2002, as compared to $15.06 billion in 2001. BKPM did not explain the drop, but analysts have listed legal uncertainties, labor conflicts, security problems and a lack of regulations governing regional autonomy as factors discouraging foreign investment. To combat this decline and attract more investors, the government declared 2003 “Indonesia Investment Year.”
The call to investment was made by the newly formed National Investment Team, chaired by President Megawati Soekarnoputri. One wonders if this investment team and proactive campaign will work, or fall on deaf ears.
Mohamad Achmad, human resources manager at ExxonMobil’s LNG plant in Aceh, feels that officials have to do more than ensure tighter security for operators. “There has to be political stability and a general sense of transparency, as well as accountability in place before the government attracts foreign investors. If not, it will be an uphill task,” he cautioned.
According to a PriceWaterhouse Coopers report, the new Oil and Gas Law falls short of all parties’ expectations. “Without change in the Indonesian oil and gas industry, (national oil firm) Pertamina may have been doomed, foreign investment may have become stagnant or declined, badly needed downstream infrastructure development may not have occurred in a timely manner, and many other negative economic events may have occurred. Now that change has occurred, whether welcomed or not, the question arises as to how to deal with this change,” said the report.
Change and reform come slowly to Indonesia. With assets estimated at more than $10 billion, Pertamina is late in effecting reforms. President and CEO Baihaki Hakim is embroiled in stifling internal politics. So, streamlining operations to resemble a modern-day corporation – with hopes of equaling Malaysia’s Petronas in profit – is a far cry away. Pertamina was nominated by the Indonesian parliament to operate as a publicly run company, to be listed sometime in 2003. However, analysts speculate that 2005 is more attainable.
Pertamina is supposed to replace and reduce its current board of directors and cut the workforce of more than 20,000 employees by 30%. This streamlining will be a blueprint for other state companies to follow. With Indonesia only tapping 20% of its oil and gas reserves, foreign investors are welcome players in the underutilized basins.
Many had hoped that reform would also put an end to Pertamina’s unfair practices and unproductive measures. Pertamina is no stranger to past abuses (since the days of Ibn Sutowo), when millions of dollars were siphoned off the firm by former President Soeharto and his cronies. Are such past practices dead?
A seasoned explorer with PT Parameswara, Wijaya Hendra Bhakti, has revealed Pertamina’s dealings with ExxonMobil on the Cepu Block. The Indonesian Oil and Gas Institute estimates that the block contains 1.4 billion bbl of oil and 8.7 Tcf of natural gas. ExxonMobil estimates even higher, at 2.2 billion bbl and 11.7 Tcf. Under the technical assistance contract with ExxonMobil that expires in 2010, Pertamina must jointly invest in exploration and technical assistance costs. “However, it’s rather alarming that Pertamina wants to sell 50% of its stake in Cepu for $400 million, due to lack of drilling funds,” said Wijaya. “I find that hard to digest, since the oil and gas reserves indicate at least tens of billions of dollars can be produced over time. How can Pertamina give that away for a paltry $400 million?”
The 2004 presidential elections will be a watershed event, many believe, where President Megawati will be forced to rethink her past mistakes and be more vocal in her thought process. She also has to be more attentive to the common people’s wishes, given that it will be the first time that a president will be directly elected by the people instead of the general assembly.
When US Secretary of State Colin Powell last year called upon Indonesian officials to redouble reform efforts, to put the country’s struggling economy on “a more sustainable long-term footing,” he did not mince words. He wanted transparency in business and the judicial process. Pertamina should also adopt the culture of greater corporate transparency and accountability, instead of greed. 
Tony Sitathan is a Singapore-based journalist, who covers several Southeast Asian countries. He is a regular contributor to this column.
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