UAE wants to invest more in Indonesia

A  Middle Eastern country the United Arab Emirates, (UAE) wants to invest more in Indonesia, but has asked the government to provide guarantees that its counterpart will not nationalize its future projects. During his visit to Jakarta, UAE Energy Minister Suhail Mohamed Faraj Al Mazrouei conveyed the rich country’s intention to invest in the areas of solar energy, ports, real estate, oil and gas, food and agriculture.

“The current investment is US$2 billion as of now. The potential [new] investment we’re looking at is up to $5 billion,” Al Mazrouei said following the signing of a memorandum of understanding (MoU) at the Energy and Mineral Resources Ministry on Thursday.

For instance, the Masdar Group is looking to invest in a solar farm and the government has agreed to help find land for the project. 

“The President promises to seek land, probably outside Java because it’s difficult [to find land] in Java,” Indonesian Ambassador to the UAE Husin Bagis told The Jakarta Post after accompanying Al Mazrouei to meet with President Joko “Jokowi” Widodo at the State Palace.

Husin acknowledged that the project might cost much more than in the UAE because of the oil country’s zero-percent tax regime, lower bank loan rates and higher solar generation capacity, which reaches 30 percent as opposed to the 18 percent in Indonesia.

“The costs might be higher, but if we could push it [electricity prices] to between 6 US cents and 7 cents per kWh [kilowatt hour], it would be feasible and they would give us more projects,” he said.

Electricity prices from the solar farm will be as competitive as the ones from coal-powered plants, from which power costs 6.5 cents per kWh, Energy and Mineral Resources Minister Ignasius Jonan said.

In the oil and gas sector, Indonesia’s state-owned Pertamina will cooperate with the UAE’s energy firms, Mubadala Petroleum and Abu Dhabi National Oil Company (ADNOC).

Mubadala has expressed interest in partnering with Pertamina in eight fields that were obtained by PT Pertamina Hulu Energi (PHE)  a Pertamina subsidiary  in January after the contracts with previous operators expired.

Pertamina president director Elia Massa Manik said that it was currently reviewing the gross split calculations for those eight fields. They consist of Tuban, Sanga-Sanga, Ogan Komering, North Sumatra Offshore, Tengah, East Kalimantan, Attaka and South East Sumatra.

The government has mandated PHE to take over eight other fields under the newly implemented gross-split scheme. Under the new scheme, the profit split between the government and contractors will differ depending on several variables, including global oil prices and the stage of production.

However, Pertamina wants to hold off the signing of the remaining production sharing contracts (PSCs) to first review the operations and costs. Pertamina will also review the operations of the blocks currently managed by Mubadala before initiating collaboration.

“We will create a small team with Mubadala. We will review their Fields, including the Ruby field, and they will review ours. Then we will collaborate,” Massa said.

Mubadala has also said it will help Pertamina find new blocks, outside Indonesia. I Regarding the partnership with ADNOC, Pertamina is looking to purchase the former’s liquefied petroleum gas (LPG) directly, without the involvement of a third party. 

The UAE’s investment, meanwhile, comes with a price. Energy and mineral resources deputy minister Arcandra Tahar said the UAE had asked Indonesia to sign an investment protection guarantee, which includes a tax treaty between the two countries and the promise to not nationalize UAE business entities in Indonesia.

Indonesia has already granted similar investment protection guarantees to 57 countries. “The investment protection is about nationalization. They asked if there was any possibility of nationalization by the Indonesian government,” Arcandra said.

Jakarta Post, Page-17, Friday, May 19, 2017