Renewal of Contract for Mahakam Oil & Gas Block: A Treacherous Policy!!

By : Dr. Arim Nasim / Muhammad Ishaq (Division of Public Affairs, Central Board of Hizb ut-Tahrir Indonesia)

Mismanagement of oil and gas in the country is confusing to many. With the support from a number of activists and academicians, there is high demand for the State-owned Oil & Natural Gas Mining Company, Pertamina, to be given the opportunity to manage the Mahakam block, whose current contract expires in 2017.

The government oversaw the Cooperation Contract of Mahakam block with Total E & P Indonesie and Inpex Corporation (Japan) on March 31st, 1967 which was valid for 30 years until March 31st, 1997 and later extended for another 20 years, until March 31st, 2017. Before the term of contract is over, Total and Inpex have made efforts to extend the contract.

The Minister of Energy and the Vice Minister and the Head of BP Migas (Oil & Gas Upstream Regulator and Implementation Agency) indicated renewal of the contract to the foreign companies. The Vice Minister of Energy was quoted as saying that Pertamina will not be able to manage the Mahakam block by itself.

However, after receiving pressures from various parties, the government finally changed their stance. In a meeting with Commission VII of the House of Representatives, the Vice Minister of Energy guarantees that the Mahakam block will be returned to Pertamina. “No need to worry about Mahakam problemsin dealing with Pertamina, “said Rudi, on Friday (22/10).

According to him, Pertamina and its Regional-Owned Enterprises will receive a share between 51-70 percent. Meanwhile, other oil and gas companies such as Total E & P Indonesie and Inpex Corporation receive 30 percent. The government admits the presence of the  foreign oil and gas companies in the management of the Mahakam block is still needed due to their funding and technologies.

However, the Director of IRESS, Marwan Batubara, said we can not keep the promise of the Vice Minister of Energy. “So far, there is no official policy regarding this issue, “he said. Furthermore, the foreign shares in the block can  increase if later on those foreign companies secretly to take up the shares of  the regionally-owned enterprises.

The Potential and Production of Mahakam block

For a long time, Indonesia has been one of the major producers of gas that has attracted many large investors. In 2010,  Indonesia’s proven reserves of gas was 153 TCF (trillion cubic feet). With the production of 8.86 million metric standard cubic feet per day (MMSCFD), Indonesia is the 9thlargest gas producer with a contribution of 14 % of the world’s total gas production. In terms of the proven gas reserves, Indonesia ranks 12th in the world (BP, 2011). Its largest reserves are located in the Natuna block, with 50 TCF, followed by Tangguh Block and Mahakam block. However, in terms of the current production, Mahakam block is still the largest.

Until now, Mahakam block has potential gas reserves of approximately 12.4 TCF which is managed by a French company Total E & P and Japan’s Inpex with 50 % shares respectively. The Total itself has explored this block since 1967, which is its biggest source of production in Indonesia. Daily production from this block is 2.5 BCF per day, which supplies 80 % requirement of the LNG Bontang oil refinery. Most of the LNG is then exported to Japan, South Korea and Taiwan. In addition, this block also produces 92.000 barrels of oil and condensate in 2011 (Platt.com).

Unfortunately, private companies, especially foreign companies still control the exploration of gas production in Indonesia. The data from the Ministry of Energy in 2011 showed that the total gas production in Indonesia reached 3,26 TCF,  mainly produced by Total (27%), Conoco (17%), Pertamina and its partners (13%) and BP (12 %). In other words, 87 % of national gas production is operated by the private companies, excluding the Pertamina-run blocks, which also cooperate with private companies.

Indeed, not all income of the production managed by the private sectors goes into the pockets of producers because the shares are divided based on the scheme of Production Sharing Contract (PSC). Still, it would be economically much more profitable if these natural resources are managed by the state. This is the bitter pill of the liberalization of oil and gas sectors which has been ongoing since inception. The liberalization of the oil and gas sector, masterminded by the IMF and the World Bank, particularly through the Oil and Gas Law Number 22/2001, has put the state-owned Pertamina in the same level with the private companies. They have to compete with them to win the tender for the management of oil and gas blocks offered by the government, including the potential ones.

Sadly, most of the gas production of produced in the country goes abroad. Based on the balance of gas in Indonesia in 2010-2025, there is a deficit in the total supply of gas production for the year 2012 in comparison to domestic demand. In 2010, for example, 52 % of domestic gas production was exported to foreign countries, even though there was high domestic demand.  The state-owned electricity company, PLN, as well as the manufacturing industries that suffer from the gas shortage are forced to use oil, which is much more expensive. As a result, their production costs end up being more expensive. In 2013, for instance, the government and the parliament agreed to raise electricity price by 15 % with the pretext that high cost of electricity tariff burdens the state budget. This should not happen if the state-owned electricity company changes from the use of oil to gas as its energy source. Even worse, the domestic gas price both for industry and households also continue to increase until its price equilibrates with that of the international market.

Old Excuse: Pertamina Incapable of Exploration?

An excuse often raised by the government and MPs when handing over the contracts of oil and gas to foreign companies is the inability of Pertamina to provide its capital and technology for exploration. There are two kinds of exploration : onshore and offshore oil and gas exploration.  The experts from Pertamina are able to explore oil and gas without any difficulties. It was them who discovered the oil reserves in the Cepu block. Pertamina says that they have been able to make exploration without foreign aids. However, due to American pressure, the exploration of  Cepu block was handed over to Exxon Mobile. Pertamina is still able to make the offshore exploration of oil and and gas (at sea) which require more advanced technologies, if there is a clear policy from the government.

It sounds strange if Pertamina is considered incapable. Why are they still considered incapable after several decades?  The inability of Pertamina for a deep-sea offshore exploration is not due to the lack of human resources. It is proven by fact that many Indonesians work for foreign companies either in Indonesia or abroad to get bigger salary. Many of them work for marine hydrographic surveying companies to install oil-rigs or pipelines, while many Pertamina employees quit and move to foreign companies such as Arco, which explores the Java Sea. So, the statement from the Vice Minister of  Energy about the incapability of Pertamina is not in terms of technology and human resources but rather it is the government or Pertamina itself who have never made any serious efforts to transfer the technology.

 

 

This is ironic! As the state-owned enterprise, Pertamina is now required by the government to expand overseas to search for oil and gas resources, while the abundant domestic reserves of oil and gas continue to be handed over to the foreign companies!

Closing

This chaotic management of the Mahakam block is a consequence of the pro-capitalist policies of the government to liberalize the natural resources legalized by the Parliament through its treacherous Oil and Gas Law Number 22/2001. It is difficult to expect pro-people policies in a capitalistic system while the rulers are the stooges of the capitalists who do not serve the interests of people. The capitalist countries will not give up all benefits they enjoy through further business or political pressures. This was done by French Prime Minister, Francois Fillon, who requested to renew the contract of Mahakam block during his visit in Jakarta in July 2011. The French Foreign Trade Minister, Nicole Bricq, also stressed that France requests to extend the contract during the visit of Indonesian Minister of Energy, Jero Wacik, in Paris July 23, 2012. Similarly, this was expressed by the CEO of Inpex, Toshiaki Kitamura, when he met Vice President Boediono and President Susilo Bambang Yudhoyono on 14th of September 2012.

It is only under the Islamic system and the trustful leaders, the natural resources will bring benefits to the people. In the Islamic economic view, gas and other mines belong to public goods (al milkiyyah al-amma). Thus, its management should be handled by the state, the Islamic Khilafah. The entire profits should be used for public purposes. Thus, these must not be given or kept under the authority of private companies, let alone the foreign companies. This is in line with the words of the Prophet. It was narrated from Abyadh bin Hammal: someone turned to the Prophet and begged to be given part of the salt mines which according to Ibn Mutawakkil, was located in the area Ma’rib and then the Prophet gave it to him. However, when the person was about to go, someone in the crowd said: “Do you realize what you gave to him is (like) the flowing water? Then, the Prophet immediately canceled his plan” (Narrated by Baihaqy & Tirmidzy). This hadith clearly shows that the Prophet did not hand over the control of the abundant minerals to the private but put it under the control of the state. Wallahu a’lam bishawab [] (RZ)