http://www.asiasentinel.com/index.php?option=com_content&task=view&id=2322&Itemid=175
The Threat to Indonesian Energy Development
Written by Terry Lacey
Saturday, 27 February 2010
More layers of government mean more hands are out
Evita Legowo, the director general of oil and gas in the Ministry of
Mines and Energy said recently that the implementation of a new Environmental
Law could reduce oil and gas production by up to 50 percent because of the
requirement to reduce the temperature of waste water from their oil and gas
production processes from 54C to 40C. She sees how hard it will be to lift
965,000 barrels of oil per day in 2010, and that Indonesia reached only 960,000
barrels in 2009, down from 1,005,600 in 2006.
The focus in Jakarta has been the continuing impasse in the legislature,
where a House of Representatives special investigating committee appears
determined to end the political careers of two of President Susilo Bambang
Yudhoyono's most respected advisors over the US$710 million Bank Century
scandal. But far below their level is where Indonesia is really crippling
itself, not just through corruption but bureaucratic inefficiency and
indecision.
The fact is that Legowo does not mean there should be no environmental
controls on oil and gas. She is nervous about what she called the "increased
complexities" resulting from involving local government in permit processes
affecting energy and mining, she told local reporters. Although she didn't say
it, those "increased complexities" have to do with how officials in the local
governments will have their hands out.
Between December 2008 and November 2009, the government offered 40 oil
and gas blocks for development but only found eight firms as takers. An
astounding 75 percent of the blocks on offer attracted no qualifying bidders.
The problems are weak pre-feasibility studies, previous underinvestment and the
sunset scenario for Indonesian oil and gas, which is getting harder and harder
to explore and exploit as the reserves diminish.
Part of the problem, however, is also a political and regulatory
framework that looks tired and tattered. Improved environmental standards sound
fresh but the problem is that in Indonesia everything can become a commodity
with a price tag on it, or a new excuse for more complication including new
environmental controls backed by well-intentioned NGO lobbyists. Some countries
have tradable carbon credits. Indonesia seems to be evolving tradable
corruption charges.
In 1999, after the fall of former President Suharto, the administration
set out to radically overhaul the role of the regions and make government more
responsible to the people, devolving power away from the central government in
Jakarta to governmental bodies at the provincial and local levels.
Decentralization began to go into effect in January of 2001. But many of the
new decentralized government units created in the wake of the reform movement
have failed because they are being led by people incapable of putting
development plans in place for local communities, or who simply sought control
of the salaries and benefits that must go to every local government unit.
A recent UNDP forum revealed an estimated 48 new local government units
in Indonesia are spending 70 percent of their budget only on paying civil
servants. These people dreamed of getting rich by being bureaucrats and local
political leaders. And who should pay for their dreams?
Evita Legowo is concerned that state oil and gas producer PT Pertamina
and multinational PT Chevron Pacific Indonesia would be the two companies who
would pay the most for these potential new complications, and she warns this
could seriously hit oil and gas production. Bagus Sudaryanto, operations
director of PT Pertamina EP, confirmed these complications could lead to
Pertamina failing to reach its 2010 production target of 128,000 bopd, while
Chevron was already lifting 458,800 bopd of petroleum and condensate by 2007.
Only eight companies produce 90 percent of Indonesian oil and condensate
(Chevron Caltex and Chevon Unocal, Pertamina, Total, Conoco-Phillips, CNOOC,
Medco (Exspan), Petrochina and BP). Similarly 90 percent of Indonesian gas
production in 2006 was in the hands of almost the same eight companies (Total,
Pertamina, ConocoPhillips, Exxon Mobil, Vico, BP, Chevron-Unocal and
Petrochina/Devon Energy) according to the Petroleum Report Indonesia 2007-2008
by the US Embassy in Jakarta).
So which is the real Indonesia?
The one led by Gita Wirjawan,* the new chairman of the Indonesian
Investment Coordinating, Evita Legowo, Karen Agustiawan, president director of
state oil and gas company Pertamina and the embattled Finance Minister Sri
Mulyani Indrawati, all held together by democratically elected president, all
of them trying to push Indonesia from being an extractive resource-based
economy to a proactive knowledge-based economy and a world economic power by
mid-century? Or the bureaucrats backed by brokers who can block the nation from
getting the oil, gas and electricity it needs?
Too many Indonesian investors are confronted with the old Indonesian
bureaucracy, especially as decentralization and the rise of regional government
democratize political culture, spreading the aspirations to join the gravy
train, but failing to carry with it the new capacities that modern
administrative culture needs.
In fact not only do they sell permits, but they sometimes sell them twice
to different people for the same land and projects.
Gita Wirjawan visited the World Bank in Washington, DC on Feb. 23 to talk
about unblocking Indonesian bureaucracy to promote investment, telling
Washington how busy he was collecting old permits from 15 Ministries to have
them reissued in double quick time by his increasingly interventionist agency.
But at the same time the traditionalists were busy in the political boutiques
putting the wrappers on new environmental permits. And new legislation always
seems to mean new regulations and yet more permits and payments.
The problem is not the politics of the environment, but the environment
for the politics. The problem is not democracy but what corrupt people will do
with it.
Terry Lacey is a development economist who writes from Jakarta.
* Because of an editing error, Gita Wirjawan was inadvertently referred
to as "she." We apologize for the error -- Eds.
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