Indonesia’s oil and gas regulator seeks Gulf investment

Indonesia aims to produce 1 million barrels per day by 2030. (Shutterstock)
Updated 08 December 2019

Indonesia’s oil and gas regulator seeks Gulf investment

  • SKK Migas hopes Saudi Arabia can help the country reach its 2030 goal

JAKARTA: Big changes are expected in Indonesia's upstream oil and gas sector with a new leadership poised to draw more foreign investment. In an exclusive interview with Arab News, the vice chairman of the industry’s regulating body explains what will happen, when, and why one of the investors should be Saudi Aramco.  

What investors are looking for is policy stability, whether they are secure enough or not to invest, Fatar Yani Abdurrahman, the vice chairman of Indonesia’s oil and gas regulator SKK Migas, told Arab News in Jakarta on Friday.

Under cooperation contract schemes, companies can have either cost recovery or gross-split production sharing contracts (PSC). The new cabinet, appointed in late October, offers flexibility.

Abdurrahman told Arab News that when he asked UAE’s Mubadala, which is already present in Indonesia, what they thought about the country’s policies, “they said they love gross-split and that cost recovery is also good.

“They are very proud of investing in Indonesia, they say they are going to grow here and put (in) more money to explore,” he said, adding that ADNOC (Abu Dhabi National Oil Company) also plans to invest in the country.

But investment from the Middle East has yet to be significant and Abdurrahman expressed hope it would come from Saudi Arabia.

How risky is investment in Indonesia?

“A few weeks ago, I went to ADIPEC (Abu Dhabi International Petroleum Exhibition and Conference) in Abu Dhabi. We opened an SKK Migas booth. Many investors came and what they wanted to know was how easy is it to invest and how secure it is, not only in terms of policy security, but also the country's security. And Indonesia is a very low-risk country,” Abdurrahman said.

Indonesia is currently implementing a policy that is adaptive to oil prices. “You will not find this in any other country,” he said.

“If the oil price is suddenly hiking, the government will benefit also, so the split will be adjusted. If the oil price goes down, which is very bad for investment, our government will sacrifice its return for the contractor to sustain their production,” Abdurrahman said.

However, as all kinds of policies in Indonesia are often subject to change, many investors worry about their long-term prospects. According to the SKK Migas deputy chief, these changes cannot act retroactively.

“When they sign a PSC, they will stay until the PSC expires. The government will honor it. Long-term planning depends on what you sign in the document. It will stay until you finish,” he said.

One of the biggest hurdles for investors, not only in the upstream sector, is Indonesia’s notorious red tape. For example, if a company wants to start exploration, it will require more than 150 permits.

“We are aware, and know it cannot stay like this,” Abdurrahman said, adding that the situation would improve soon, as SKK Migas  will launch a one-door service policy by early January.

“We want all oil and gas companies to come and see us, they will apply for permits and we can manage this. SKK will be the leader proposing to other institutions and we will talk to relevant departments what needs to be cut,” he said. The initiative was already accepted by Arifin Tasrif, the country’s new minister for energy and mineral resources.

“It will take some time, because we need to change the culture as well, it’s not easy but we have to do it,” Abdurrahman said. He expects that within a year or two red tape will be cut to 10 permits, and that it will about five years for a company to start production.

To expedite, SKK Migas is also investing in digitalization.

“It will accelerate the whole process, IT technology, artificial intelligence, will help us. This is our dream. We would monitor production, there will be no need to wait until people send us reports. We are now constructing our integrated operations center, we will launch it on Jan. 1.”

By the end of December, the regulator is also going to announce its long-term strategic plan, “to ensure we can achieve 1 million barrels a day by 2030,” said the vice chairman, who prior to his current role worked at ExxonMobil, Shell and Petronas.

“We have identified 12 prospects across the Archipelago. We can go offshore, we can go deep oil. This data is open to oil companies, you can come (to SKK Migas) and take a look free of charge. In other countries you have to pay,” Abdurrahman said.


Indonesia hails ‘historic’ $22.9bn mega-investment deal with UAE

Updated 17 January 2020

Indonesia hails ‘historic’ $22.9bn mega-investment deal with UAE

  • Leaders agree initial $6.8bn projects plan, including initiative to build a replica of Abu Dhabi grand mosque in Java

JAKARTA: Indonesia’s business community on Thursday welcomed the UAE’s pledge to pump tens of billions of dollars into a wide range of key sector projects.

President Joko Widodo and his entourage secured an overall $22.9 billion deal during an official two-day visit to Abu Dhabi earlier this week covering the fields of energy, logistics, port construction, mining, and agriculture.

It was also revealed that the delegation brokered a UAE commitment to assist in establishing an Indonesian sovereign wealth fund.

At a bilateral meeting, the Indonesian leader and the Crown Prince of Abu Dhabi Sheikh Mohammed bin Zayed Al-Nahyan witnessed the signing of 11 business accords between the two countries. Indonesia’s Minister for Foreign Affairs Retno Marsudi said the UAE had committed to investing $6.8 billion out of the total agreed spending package into the initiatives.

Luhut Pandjaitan, Indonesia’s chief minister for maritime affairs and investment, described the UAE’s pledges as possibly being “the biggest deals in Indonesia’s history, secured with the UAE within only six months,” referring to the crown prince’s visit to Indonesia last July.

While most lauded the deal, some Indonesian business leaders remained cautious over the long-term prospects for the projects.

Fachry Thaib, head of the Middle East Committee and OIC at the Indonesian Chamber of Commerce, said the schemes could trigger a wide-ranging domino effect through job creation and other business ventures.

“The government needs to have a strong lobbying team that can follow up these deals and push them into investment realizations. We have had such commitments from other Gulf countries, but there was no further lobbying and the pledges were hardly realized,” he told Arab News.

Zaini Alawi, a businessman who exports and imports between Indonesia and the Middle East, said: “It would set a good precedent to attract other Gulf countries to invest here if Indonesia shows it could aptly manage these investment deals.”

Director for Middle East affairs at Indonesia’s Foreign Ministry, Achmad Rizal Purnama, told Arab News that the $6.8 billion commitment from the UAE was only the first phase of a long-term program.

Widodo and the crown prince also witnessed the signing of five government cooperation agreements in health, agriculture, Islamic affairs, and counterterrorism.

Indonesian Minister of Religious Affairs Fachrul Razi said one of the main aspects of the cooperation agreement would be the promotion of religious moderation and raising awareness of the dangers of extremism.

FASTFACT

The UAE has pledged to assist in establishing an Indonesian sovereign wealth fund.

Noting that the UAE had pledged to fund the construction of a replica of the Abu Dhabi grand mosque in Solo, the president’s hometown in Java, the minister pointed out that the grant was part of a commitment by the two countries to establish a mosque that welcomed all people and served a pivotal role in promoting the middle path of Islam.

Riza Widyarsa, a Middle East expert at the University of Indonesia, told Arab News that the cooperation deal could help more Indonesians to understand that not all countries in the Middle East observed conservative Islam. “They are also very active in countering religious extremism and radicalism,” he said.

In addition to the multi-billion-dollar projects, Purnama said Indonesia had also secured the UAE’s commitment to assist in establishing an Indonesian sovereign wealth fund into which the UAE, the US International Development Finance Corporation, and Japan’s SoftBank would inject funding.

And according to Pandjaitan, the UAE had pledged to be “the biggest contributor” to the fund.

The fund would be used to finance Indonesia’s ambitious infrastructure development projects and the construction of its proposed new capital in East Kalimantan, a relocation that has been estimated to cost $33 billion and of which Indonesia could only afford 19 percent.

He said all parties involved would meet in Tokyo soon to set up the structure of the fund and to finalize the plan, which the government expected to launch by mid-2020, a year after the crown prince proposed the idea to Widodo.

“This could be the first time that big capitalists work together in a single project,” Pandjaitan added.