Indonesian Petroleum Association (IPA) said on Monday that Indonesia may lose at least 150,000 barrels per day of its existing hydrocarbon production if the government continues to apply new cost recovery ruling that the association saw detrimental to upstream investment.
Chairman Ron Aston said that the Government Regulation 79 on Cost Recovery is counterproductive to Indonesia’s energy goals, which actually requires tripling of investment in order to maintain production. “GR 79 will reduce investment and resulting in decline in production by 20 percent and possibly more,’ he said, adding that the figure was based on survey on its member firms’ negative reaction if the government continues to apply the ruling.
“GR 79 potentially changes the principle of existing PSC unilaterally, which are protected by Indonesian Civil Code, and is critical to investor confidence. GR 79 is essentially a new tax on operating.
GR 79 also creates uncertainty for future PSCs since it potentially allows government to change equity split and limit cost recovery from time to time after the PSC signed.
In the Government Regulation, there must be no retroactivity and no capping, otherwise this would represent a threat to agreed contract terms and result in legal conflict.”
Ron said production will be reduced due to increased costs and the uncertainty created around the long-term investment climate.
IPA, which members represents almost the entire upstream oil, gas sector in Indonesia, has filed judicial review with the Supreme Court earlier this month, asking the court to drop a number of articles in GR 79, which it viewed contrary to the PSC principles.
“IPA has sought to engage relevant government representatives on GR 79, unfortunately there has been virtually no meaningful liaison with the industry and IPA believes it had no alternative but to file judicial review as a last resort due to the time limitation under the law,” he said.
Aston went on to say that GR 79 is contrary to Indonesia’s need in attracting huge investment in upstream oil and gas sector to maintain hydrocarbon production at current level until 2025 to support Indonesian economic growth. Aston predicted that Indonesian upstream sector will need capex of above US$20 billion per year in 2021-2025 to maintain current production level.
Indonesia needs aggressive efforts to stabilize supplies and those efforts require favorable price and supportive regulatory environment, which includes clear and stable regulation, consistency between regulation and resource holder’s objective and effective and pragmatic application of regulation, he said.
Indonesia, a former member of OPEC is faced with constantly declining crude production as most of its fields are maturing and no significant replacement was made over the year. Indonesia is expecting to produce 920,000 barrels per day this year at the backdrop of ever increasing consumption due to economic growth. (alex)