Breaking Indonesia’s Oil and Gas Field Development Policy

In his book “New Ideas from Dead Economists”, Told G. Buchholz said the economy is the science of choice. He’s not telling us what is selected, but it helps us understand the consequences of our choices. The world is full of limitations cause we cannot get everything at once. This means that we must choose one option and bear the consequences of what we choose it.

Economics usually coupled with political science. Why? Politics is a process that determines the views (values) who will apply in the country. Thus, politics is a process to determine our choices. Because the economy is very close to politics.

In the world of Indonesia’s energy, oil and gas field development is never free from interference of foreign investors. This is due to limited budget funds owned by Indonesia itself. It is conceivable, Indonesia requires the exploration costs of U.S. $ 3-4 billion per year by calculating the ratio of 10-20% success of exploration. The cost of it could not be imposed on state finances, especially if the priority in terms of other cost country.

For that, government should select contract system between the government as the owner of oil and gas resources, to foreign investors as the manager of oil and gas itself. According to Johnston, there are two options contract system methods commonly used by the government of a country to determine the oil and gas field development policies. The first is the Product Sharing Contract (PSC) and the second is the Royalty System. In the PSC system, the state recognized as ownership of oil and gas resources. Whereas in the Royalty System, ownership transferred to the company that produces oil and gas companies.

Until now, Indonesia is still insisting on the use of PSC as a method of system contract with foreign investors. The reason this system can provide at least 65% of income for the country. Instead, the system only gives part of the royalties to a maximum of 47%, 17% of royalties and taxes 30%.

Belongs to Law No. 22/ 2001, Indonesia has no contractual obligation to maintain the PSC as a choice of system. This Act gives discretion to the government to abolish the PSC system. Instead, the government can change the system of Royalty System.

And this is reinforced by a fresh breeze to ears of foreign investors, that the Indonesian government had to change the PSC System into Royalty System in the year 2008. But the news turned out to be just a passing breeze past. Many people assume that the government needs to study in terms of legislation especially when collided to the Section 33 verse 2 and 3 UUD 45.

The word “master” in that section, refers not only to land tenure, but also includes control functions in the management of the oil and gas field. So foreign investors will not be released simply to manage in accordance with their wishes, without any control from the government.

In accordance with what has been presented Told G. Buchholz was the beginning of this writing, Indonesia now must operate consequence of the PSC System, as this country’s system. Oil and gas reserves that are still unexplored, it should be that Indonesian government break a new policy to improve Indonesia’s economy amid global financial crisis today.

At least, there are five things that the government needs to be done to improve the marketability of Indonesian oil and gas field in the eyes of the world.

The first is to simplify bureaucracy and regulation, this can be reflected in oil and gas fields are still many who failed due to bureaucratic difficulties investing.

The second is the increase in premium oil and gas depletion of funds for the improvement of national capabilities in the national energy sector in order to attract the attention of foreign investors.

The third is the primacy of national companies in the management of oil and gas field which contract is finished, taking into account the work program, technical capability and financial capacity which have been owned national companies.

The fourth is a detailed study to combine the Indonesian PSC system with a system of developed countries but still keep the principles of Pancasila UUD 45. Many other state systems that can be emulated to further strengthen government control without impairing the interests of investors.

The fifth is the determination of the appropriate oil and gas taxes. Indonesia is one of the state that has highest taxes in various sectors. And this problem is coupled with intervention from other government agencies such as the tax authorities and local governments.

Ryan Alfian Noor

Writer is Petroleum Engineering Student of ITB 2006

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