Chevron and Total publicly challenge one nationalist rule. Is it a
trend?
The ongoing war of nerves between
the Indonesian government and major multinational oil and gas companies
escalated this week as two of the country's biggest energy providers publicly
objected to a central bank rule requiring exporters to channel all their
earnings through local banks. The issue has become more acute recently given
the drop in the value of the rupiah against the US dollar.
Both US oil giant Chevron and
French oil company Total say the rule could negatively impact future investment
in the country and that it violates existing production sharing contracts
(PSCs) that govern their activities in the country. The matter could end up in
international arbitration if the two sides cannot find a resolution.
Chevron had earlier told
government regulators that the central bank rules were among a number of issues
threatening its investments in Indonesia.
"We are concerned with the
[BI regulations] that have conflicted with the spirit of the PSCs, as well as
its impact on our investment risk," Chevron Indonesia's vice president for
government policy and public affairs Yanto Sianipar said on Wednesday,
according to the Jakarta Post.
Yanto said the firm was seeking a
"win-win solution" but would not reject arbitration, the Post
reported. Chevron is the country's largest oil producer, accounting for 45
percent of total crude production in 2012.
The fact that the companies are
speaking out is a sign of worsening tensions with the government on several
issues. For the most part, the multinationals have kept publicly quiet as the
nationalism train has gathered steam. That seems to be ending, as both Total
and Chevron say they cannot afford to put their revenues in local banks, where
repatriation could be delayed and bank charges will be incurred.
Multinational mining and energy
companies have been under fire for months over a variety of regulations
designed to give the government more control over extractive industries. Rising
nationalist sentiment has conspired with elections coming in 2014 to create a
climate of distrust between the government and several major companies that are
facing contract renewals on concessions. The result has been a major slow-down
in investment plans for both energy and mining, according to a number of
foreign business executives. Behind the scenes some companies question whether
they should stay in Indonesia.
The government says it is time to
redraw the organization chart controlling energy and mining. For decades the
government has used binding multi-year concession contracts as a lure to get
multinationals to invest billions of dollars in mining and energy. While the
revenue split and taxation from the current system provide enormous revenues
for the government, numerous officials say they want the resource sector to be
exclusively controlled by local companies, even if that means a decline in
production.
At the same time, the government
is calling on the energy sector to increase production in both oil and gas,
which analysts say is unlikely to happen if the major companies feel the rules
of the regulatory game are shifting under their feet. Crude oil production has
been steadily falling in Indonesia since 2000, when it reached 1.4m barrels a
day, to 918,000 in 2011. Gas production in the same period has gone from 63
billion cubic meters to 76 billion. The country is a net importer of oil.
"With today's contracts and
way of working, it would be very difficult," Total E&P Indonesie's CEO
Elizabeth Proust told reporters on Monday in discussing the Bank Indonesia
regulation. "It's not possible."
A 2011 Bank Indonesia regulation
requires all companies to keep their export earnings in local banks. It was
intended to provide sufficient dollar reserves to protect the rupiah. Oil and
gas contractors were added to the rule last October and they have until June 30
to comply.
Export permits can be suspended
for companies that refuse to follow the rule.
"For the time being, we
cannot implement the regulations of the Bank Indonesia and we have no plans to
do so," Proust said this week, according to the Jakarta Post.
Proust said the firm had been
depositing around $2.5 billion per year in domestic banks.
Total is Indonesia's largest
liquefied natural gas producer, largely though the Mahakam block in East
Kalimantan. That block, which is due for renewal in 2017, has been targeted by
some nationalist groups who say it should be given instead to national oil and
gas company Pertamina. No renewal of Total's concession has been agreed.
While Total's investment plans
for 2013 remain intact, Reuters reported that Proust said uncertainties over
the Mahakam contract extension could impact its future in the country.
"For the time being we can still work, but in the coming years it will be
more difficult," she said.
Bank Indonesia's spokesperson
Difi Johansyah told the Jakarta Post that the central bank would insist on the
June deadline for all firms, including oil and gas companies. There is
"not a single article of the government's PSCs [that] forbade the central
bank from regulating the record-keeping of dollar-based export proceeds,"
Difi said.
Smaller energy players, including
Conoco and PetroChina, have complied with the regulation, the Jakarta Post
reported.
An ExxonMobil Indonesia spokesman
told the Jakarta Post the company is in talks with officials on the banking
rule.
ExxonMobil was also stung by
regulators when it was told that its local CEO, Richard Owen, would not have
his work permit renewed. He was accused by officials of being
"uncooperative" on a number of issues, including development of a
major oil block.
ExxonMobil was recently in
sensitive talks to sell some exploration and production assets in Sumatra to an
Indonesian company. The tender for the sale was abruptly cancelled by the
company late last year, reportedly because there was political pressure brought
to bear in favor of a certain bidder. After the sale was dropped, Owen became a
target of the energy ministry's anger.
A. Lin Neumann
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Health care and Life Science with expertise in ASEAN 's area. We are currently changing the platform of www.yourvietnamexpert.com, if any request, please, contact directly Dr Christian SIODMAK, business strategist, owner and CEO of SBC at christian.siodmak@gmail.com. Many thanks.
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