The government is looking to switch gears and focus on creating access to affordable oil and gas for the public by importing the commodities rather than holding onto domestic production to secure state revenue.
Estimates that the consumption of petroleum will skyrocket have made the government consider boosting its imports if domestic prices prove too high for the public and the industrial sector.
Energy and Mineral Resources Minister lgnasius Jonan emphasized that the President Joko Widodo administration was more focused on supporting even economic growth and boosting global competitiveness rather than just generating revenue from oil and gas production.
“What’s most important for the country is to push for even economic growth and also for purchasing power to increase [...] if We have a large purchasing power, our productivity will increase and then We can take advantage of our natural resources as a prime mover of the economy,” he said
On the other hand, if oil and gas production decreases While consumption rises, the government will just import oil and gas to meet domestic needs. “That’s the basic gist of it,” he added casually. The government’s more relaxed attitude is due to the fact that the oil and gas sector is no longer a primary state revenue maker, with consistently low global crude oil prices and depleting oil reserves.
Last year, the government recorded Rp 262.4 trillion (US$ 19.69 billion) in total non-tax revenue, Rp 44.9 trillion of which came from the oil and gas sector. The sector’s contribution missed the government’s initial target of Rp 68.7 trillion in non-tax revenue.
Indonesia has been a net importer of oil for several years due to falling production, aging wells and a lacks of new discoveries with low interest on the part of business players to conduct exploration activities. The oil and gas sector has long been burdened as well by cost recovery a reimbursement scheme for exploration and exploitation activities conducted by contractors.
The latest data of the Central Statistics Agency (BPS) shows that oil and gas imports experienced a 10.61 percent year-on year (yoy) growth in value to $2.43 billion in February. Petroleum products made up the bulk of oil and gas imports with more than 60 percent, followed closely by crude oil with 30 percent.
To compensate for decreasing production and revenue, the government has made several efforts to improve the oil and gas sector’s investment climate. The Energy and Mineral Resources Ministry issued the new gross-split sliding scale to slowly replace cost recovery, which supposedly gives contractors much more freedom over their activities, but may also cause them to rein in their expenses.
The government is also in the midst of revising Government Regulation No. 79/2010 on cost recovery and tax treatment for firms working in the upstream oil and gas sector. At the same time, it has to tackle increasing consumption, while also compensating contractors for their expensive activities.
Domestic demand for oil in the country has been forecast to reach anywhere between 1.8 million and 2.29 million barrels of oil per clay (bopd) by 2025. Finance Ministry Budgeting Director General Askolani said Indonesia might be better off following in the footsteps of other countries, such as the United States and China, which preserved their oil reserves while oil prices were low.
“Our next challenge is whether to save any new oil reserves that we find and leave them for future generations. If import prices remain low, why do we have to go all out on exploration?” he said. The National Energy Board (DEN) estimates that oil and gas imports will be three times the current demand by 2025 and six times by 2050, Meanwhile, Satya W. Yudha, deputy chairman of House of Representatives Commission VII on energy, said it was important for the government to distinguish between energy self-suffciency and security.
The latter was much more important, he said, considering that global competitiveness was a priority of most countries around the globe. “It doesn’t matter if a country doesn’t even have any natural resources, so long as it can meet domestic demand at a competitive price,” he said.
Jakarta Post, Page-13, Saturday, March, 25, 2017
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