JAKARTA - The lack of transparency in the Production Sharing Contract (PSC) extension process will lead to a slowdown of investment in the final years of the PSC which could consequently lead to continued decline in production.
"If the government is not transparent in the process of extension, it would likely to decline the production. No wonder Indonesia continues to be a net oil importer, "said Suyitno Patmosukismo, Executive Advisor of the Indonesian Petroleum Association (IPA) to the Investor Daily in the Senimar titled Quo Vadis : Revision of Oil and Gas Law at the Nikko Hotel, Jakarta, Tuesday (9 / 11).
According to Suyitno, besides requiring transparency in the PSC extension, to attract investment, the application of gas prices is a priority. Although the government will set the price, market force should be the primary basis for pricing policy. "The gas supply will suffer if gas price is expected to subsidize other industries," he said.
He complained that existing PSCs are steadily being eroded by the introduction of new rules and regulations that impact the economic of the contracts. Regulation no. 22/2001 Article 63c provides the legal basis for the preservation of existing PSC terms.
Suyitno proposed that the Regulation no. 22/2001 to include articles that confirm the basic principles of legal certainty. He also asked that the government regulations should not be conflicting with oil and gas regulations, and should not include any capping on cost recovery or be applied retroactively.
To ensure future production, exploration activities must be encouraged and accelerated. For that, he suggested that the government should consider providing incentives to encourage increased exploration activities conducted in the region that is increasingly difficult and challenging.
"Meanwhile, to support the investment increase, the government should consider changing the current restrictive regulations governing data access," he said.
In the same seminar, Milton Pakpahan, members of DPR Commission VII of the Democratic Party, said the implementation of production sharing contracts (KBH) can reduce investor interest in oil and gas upstream activities.
"The government should create a favorable investment climate if they want to stimulate investor interest. If investors are not interested, it is definitely could decrease the production, "explained Milton.
He also mentioned that based on Price Waterhouse Coopers (PwC) survey results in 2002 and 2005, declining investor interest is due to a decreasing investor perception of the potential oil and gas resources in Indonesia which has led to a decline in oil prices or political turmoil.