Mahakam Block - Photo by Special Task Force for Upstream Oil and Gas

JAKARTA (TheInsiderStories) – Over the past two months or so, the Energy and Mineral Resources Ministry has taken bold steps to revoke hundreds of regulations, permits, and recommendations, with an aim to lure more foreign investment in the country’s energy and mineral sector, including oil and gas.

The energy ministry made the decision on the back of trending down of investment in the sector in the past few years, which has also resulted in declining of oil lifting. In total, the energy ministry has scrapped 186 regulations, permits and recommendations, consisting of 90 regulations and 96 certifications, recommendations and permits.

The ministry scrapped the regulations as they are considered irrelevant, overlapping with each other or contra-productive with the Joko Widodo government’s efforts to boost investment in the energy sector.

Industry players and energy observers have persistently raised concerns over the falling investment both in exploitation and exploration areas, which resulted in the declining of oil and gas production as well as reduction of oil and gas reserves. Lack of investment in explorations has raised concerns as it will result in depleting the country’s oil and gas reserves.

Based on the energy ministry’s data, the total investment in the upstream oil and gas sector last year reached only US$9.33 billion, lower than the target of $12.29 billion. Of these, only $180 million was invested in oil and gas exploration, lower than the target of $870 million, and only $9.15 billion was invested in oil and gas production, far lower than the target of $11.42 billion.

The government revenues – from taxes and non-taxes – though reached $11.32 billion, slightly higher than the target of $10.71 billion and cost recovery amounted to $11.32 billion, higher than the target of $10.71 billion. The higher government revenues were mainly due to higher-than-target oil price last year. The oil and gas sector was used to provide the largest contribution to the State Budget, however, over the past few years, the contribution from the sector was diminishing.

Source: International Energy Agency (IEA)

In 2017, oil lifting reached only 803,800 barrels of oil per day, lower than the target of 815,000 bopd, while gas lifting reached 1,140 thousand barrels oil equivalent per day (boepd), lower than the target of 1,150 thousand boepd. Overall oil and gas lifting reached 1,944 thousand boepd, or lower than the target of 1,944 boepd.

Indonesia was net oil exporter until early 2000s but has been net oil importer since than. Today’s oil production only half of the production in the 1990s which reached as high as 1.6 million bopd. Unlike oil, gas production has tended to be steady.

The declining of investors interest in investing in oil and gas sector was also reflected in lack of interest of foreign investors in bidding the oil and gas working areas, which were auctioned by the energy ministry.

There are various reasons behind the declining of investment. The first is falling oil price, which led to massive reduction in investment; second, higher costs of investment as oil reserves are located in remote areas and deepwater; third, maturing oil and gas fields which results in higher expense for production; fourth, unfavorable investment climate; fifth, lack of attractiveness of production sharing contract scheme compared to schemes offered by other countries; sixth, inconsistency of regulations as shown by the government’s decision to change the oil and gas laws; seventh, difficulties in acquiring land to set up facilities; eight, complicated and lengthy investment permits, and others.

Given the above circumstance, the Joko Widodo government is stepping up efforts to overhaul investment permits and procedures included in the oil and gas sector.

Among Among permits that have been scrapped is the Recommendation on Foreign Workers and Plan to Employ Foreign Workers, Recommendation Letter to Distribute Fuel (RLDF) and Registered Recommendation Letter (RRL) which was required for an oil and gas support companies as well as an approval for a design and the utilization of oil and gas equipment.

The government is also planning to launch the so-called online single submission (OSS) in the next few months, which integrating all investment procedures and permits from the central down to local government levels. Under this scheme, each investor will be given single identity which will allow the government to track down the progress of the investment procedure.

Director General for Oil and Gas Ego Syahrial admitted that those regulations that have been revoked have hampered investment in oil and gas sector. It takes a lengthy process to obtain permits, therefore the ministry decided to revoke them.

Some observers have aired their doubt over the impact of the revocations on the increase of investments. Certainly, this is the challenge for the energy ministry to send out a clear message to investors and business players over the ministry’s intention and changes that have been and will be undertaken.

The revocations of the regulations, permits, stipulations, and recommendations may not have an immediate effect on the increase of investment. However, this shows goodwill and commitment of the government, in particular, the energy ministry to overhaul and improve the bureaucratic system in the country towards a more investor-friendly.

Written by Roffie Kurniawan, email: roffien@theinsiderstories.com