Second day of the 37th IPA Convention and Exhibition further emphasized the importance of enabling business climate as a prerequisite to developing the industry.
The first plenary session of the day highlighted various lessons learned from Indonesia as well as other countries. Industry practitioners and governments alike recognized how enabling business climate can attract multinational companies to invest in a country.
Minister of Oil and Gas of Oman H.E. Mohammed Hamad Al Rumhy shared success stories on how Oman has built its oil and gas industry. He emphasized on three pillars: (1) relationship with other parties, such as foreign countries; (2) relationship with ourselves; and (3) relationship with its resources, including technology.
Al Rumhy stated, "People started to like what we're doing, in terms of fiscal and legal facilities, and the industry started to grow significantly. We provide free tax during exploration period and allow people to be creative without worrying too much about fiscal issues."
The following panelist, President and CEO of PTTEP Tevin Vongvanich, commended Oman as a friendly and understanding country, which is crucial for companies to operate. Vongvanich added several others crucial factors in developing PTTEP, based on the company's experience, including technology and capabilities, caring for the environment, creating values for the community, and a balanced portfolio.
Homegrown industry practitioner Karen Agustiawan (President Director of Pertamina) also shared the company's success stories and ambition. In recent years, Pertamina has started to shift the company's paradigm from that of bureaucratic mindset to a more entrepreneurial one. She said, "We have an extra challenge as a company, in that we are obliged to provide public services in Indonesia."
Agustiawan shared the company's ambition to be an Asian champion by 2025, with growth in petrochemical, coal-based energy, power, and gas. Agustiawan also highlighted her company's emphasis on human capital. Pertamina has established Pertamina Corporate University, in collaboration with leading institutions such as INSEAD and Harvard, to help develop its employees. The university will be open for public in due time.
Meanwhile, Managing Director of Credit Suisse Christian Deiss reiterated the importance of Asia in future global growth coupled with a strengthening capital market. The Asian oil and gas industry needs to leverage more on this. Deiss emphasized that now is a defining moment for IOCs and NOCs in the region, as some major US-based companies have retracted its investment from the region to focus more on its in-country development.
Despite lessons shared from various regions in the world, as David Morrison of Wood Mackenzie cautioned, Indonesia has its unique potentials and challenges, and hence would require unique solution for the industry.
This note from Morrison was carried over naturally to the second plenary session, which specifically discussed what Indonesia could do to realize its potentials.
One major potential underlined by Director General of Oil and Gas, Ministry of Energy and Mineral Resources, Edy Hermantoro is the country's deep water oil and gas reserves, particularly in East Indonesia. He said, "We understand, however, that development in the west region is still more profitable than the east region due to infrastructure availability.
Hermantoro added, "What we need most at the moment is a special map, sedimentary map that can help investors to see the potentials in Eastern Indonesia."
To promote further investment, the government has committed to provide incentive and facilities for oil and gas upstream sector, including exemption of import duty and import VAT for goods imported for exploration and exploitation activities, tax relief on land and building in the exploration phase working acreages, consistency and certainty in legal aspect, and contract period that covered the certainty of investment return.
Similar note was posed by Chairman of SKKMIGAS Rudi Rubiandini R. S. He too recognized the potential of Indonesia's deep water resources and its high cost investment. Further, Rubiandini boldly underlined the potential of gas sector in Indonesia, "We still need to push the oil production, but the era of oil production has passed. The future is in gas."
In his talk, Rubiandini pledged to streamline SKKMIGAS approval process, shifting to macro management paradigm, maintain an average of profit margin (GOI and contractor) of about 76.7%, maintain success ratio of about 56% for exploration wells and encourage exploration of huge unexplored conventional HC and CBM resources. Rubiandini also demonstrated SKKMIGAS's willingness to discuss PSC Fiscal Regime for mutual benefits.
Long term partner in the Indonesia oil and gas industry President Director of INPEX Indonesia Shunichiro Sugaya emphasized the importance of IPA members as industry players to speak in a single voice to tackle issues of the industry and collaborate with the government to realize Indonesia's oil and gas potentials for the benefit of the Indonesian people.
Sugaya shared his views on key to success to realize such exploration and production (E&P) potentials in Indonesia. Respect toward PSC's sanctity, provision of incentive and government's macro management efforts are crucial to attracting investors, in addition to deployment of a long-term framework (PSC extension, gas pricing), he said, would yield an expansive total production with sustainable investment.
Clarity in contract extension was also considered as a major issue by Managing Director of Chevron Indonesia Jeff Shellebarger, in addition to human resources needed to do the work and decisions over the types of contract applied. Shellebarger said that prioritizing investment is a challenge in the industry and clarity in contract extension would increase the certainty of the yield of the investment.
This, as well as the certainty, clarity and consistency of the overall regulatory framework, were also deemed crucial by two other panelists, namely Darren Murphy of Jones Day Law Firm and Vice President First Reserve Asia Limited Roger Huang. Huang said, "Considering the cost, we would be more likely to invest in markets with clear regulatory framework."
The 37th Annual IPA Convention and Exhibition is being held on May 15-17 in Jakarta with the theme ‘Promoting Investment in a Challenging Environment.' The event is the biggest Convex ever held by IPA, with a 30% increase of visitors from the previous event. 10,000 visitors are expected to come for the exhibition, with 260 companies exhibiting.