Chevron Indonesia is the latest to feel the heat
Having been the darling of
foreign investors and business pundits for the past couple of years, Indonesia
is now finding that some of its biggest and longest-term investors, especially
in the energy sector, are growing fed up with policy shifts and the climate of
hostility toward multinational companies.
With the mining and energy
minister having said recently that ExxonMobil's local CEO would be turfed out
of the country over a stalled asset sale, executives say they are confused and
worried over the future here and are concerned about speaking out for fear they
will be forced to follow him out.
The growing intimidation of
multinationals operating in the country prompted Chevron Indonesia Thursday to
warn the nation's interim upstream oil and gas regulator that the deteriorating
investment climate could lead to lower future investment by the company, which
has been operating in Indonesia since 1952 and is the country's largest oil and
gas producer.
The country's Supreme Court also
announced on Thursday details of a November ruling that would benefit local
governments and mid-sized miners operating in Indonesia, annulling four
articles of an Energy and Mineral Resources Ministry regulation issued last
year, stifling the government's efforts to tighten raw materials exports and
reorganize the mining industry.
Those developments followed the
announcement earlier this week that Richard J. Owen, ExxonMobile's CEO, had in
effect been kicked out of his job by a government agency that regulates oil and
gas production, over refusal by the US oil giant to divest itself of three
natural gas blocks near Aceh that were coveted by Indonesian companies.
SKMigas, the temporary oil and
gas regulator that replaced the long-standing regulator that was abolished in
October by a Constitutional Court ruling, has the power to monitor energy
company management personnel. The new agency refused to renew Owen's tenure.
Like Chevron, ExxonMobile has
been operating in the country for more than four decades - since 1968 when its
predecessor Mobil began operating the Arun gas fields, which are owned by the
Indonesian state oil company, Pertamina. The Arun fields, until their closing
in March, contributed to the Indonesian budget with about $1 billion in revenue
annually.
Economic nationalism has been
growing for about a year as top government leaders have cottoned to the idea
that, with strong domestic growth insulating the country from global economic
trouble, they can take back ownership of natural resources and simply hire the
multinationals to dig them out.
Chevron's hardball statement is
unusually blunt in its language, a move that may not play well with the
increasingly assertive government officials. Most resource companies say that
the lesson they draw from the Owen case is to keep their mouths shut and see if
the current climate improves. But with elections looming in 2014 and
nationalism a potent ‑ if not ideologically deep - issue, it seems unlikely
that investors and the government will be seeing eye to eye anytime soon, especially
in the natural resource sector.
Looking at growing
interventionist actions by various ministries and their impact on investment,
even bullish analysts are growing wary of the direction the government is
taking. "The government increasingly seems to be treating private sector
companies, both foreign and domestic, as tools of government policy to be
directed and controlled rather than as independent engines of economic
growth," wrote long-time Indonesia resident and business consultant James
Castle in the current issue of Tempo magazine.
"This one-sided
interventionist approach risks alienating the very investors the government
wishes to attract—high quality, transparent companies that are
compliance-oriented and conscious of their public image."
The ruling on mining by the
Supreme Court stripped the ministry of its authority to approve partnerships
for smelting projects and to appoint mining concession holders to build
smelting facilities by annulling the three other articles. Through its ruling,
the court effectively handed authority back to local governments in accordance
with the 2009 law, which mining industry officials fear means local
jurisdictions will favor indigenous operators to the detriment of the
multinationals operating in the country.
Shelby Ihsan, the chairman of the
Indonesia Nickel Association, which brought the case to the court, said he
welcomed the details of the ruling and demanded the repeal of a wide range of
other regulations dealing with grants of approval by the central government.
Chevron Indonesia made the threat
to cut investment over a case in which the Attorney General is accusing the
multinational of causing state losses of about Rp100 billion ($10.3 million) in
relation to a bioremediation project in Duri, in Riau province. Four Chevron
employees have been declared suspects.
The attorney general claims
Chevron received US$23.4 million in recovery costs by the now-defunct state
upstream oil and gas regulator BPMigas for the bioremediation project despite
the fact that BPMigas says no state losses have been incurred. The Attorney
General, however, also claims that the two companies Chevron appointed to
conduct the soil cleanup were unqualified to do so.
The Chevron letters state that
the company reserves the right to reduce its investment in Indonesia, a move
that would lead to lower production, if there were substantial negative changes
to the country's investment climate. In this year's plan of work and budget,
Chevron had intended to disburse US$3 billion in investments to produce 320,000
barrels of oil per day, based on the assumption that their contracts remain
honored by the government.
Cited as developments that could
have a negative impact on the investment climate were the continued
criminalization of oil and gas activities and a reduction in export approvals
due to a Bank Indonesia regulation issued in 2011.
Chevron also cited changes in
fiscal policies stemming from government regulations which have made it more
difficult for companies to receive reimbursement for exploration costs, as well
as the revision of the Oil and Gas Law, and major delays to expenditure
approvals during the transition from BPMigas to SKMigas following the
Constitutional Court's decision.
Yanto said the company routinely
sent the regulatory authority letters whenever there were issues deemed to
potentially affect operations, investment or contracts, adding that respect for
contracts and legal certainty were important in allowing the oil and gas
industry and the state to develop and produce energy.
Chevron Indonesia's oil and gas
holdings consist of the Rokan, Siak, Rapak, Ganal, East Kalimantan, Makassar
Strait, West Papua I, and West Papua II blocks.
(With reporting from the Jakarta
Globe)
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