Clarity, consistency and certainty in government regulations are the keys to encourage the oil and gas industry to increase its investment in Indonesia, especially in exploration. The government has taken steps towards improving this, but further actions need to be taken to establish a conducive business climate for growth.
Officially opened today by President Susilo Bambang Yudhoyono, the 37th Annual Convention & Exhibition of the Indonesian Petroleum Association (IPA) is expected to contribute proposed solutions to the challenges in the oil and gas industry, through the participation of various stakeholders including international and national industry players and the government sector.
The event was attended by more than 3,100 participants on the first day only, exceeding the expected attendance of 2,300 participants. Similar number of participants is expected to attend the second and third days of the event.
During his speech, the President instructed relevant ministers to expedite bureaucratic reform. This includes the Chairman of the Indonesia Investment Coordinating Board and the Coordinating Minister for Economic Affairs to streamline regulations on license, permit and approval processes to create a more enabling business environment; and for the Minister of Energy and Mineral Resources (ESDM), Head of SKKMIGAS, and the Finance Minister to design attractive incentive schemes to boost investment, particularly in exploration activities.
The President encouraged industry players to increase productivity and efficiencies to improve investment and also encouraged all companies to foster stronger synergy between foreign and domestic companies to promote the use of domestic content, including national upstream support services as well as banking services. He also invited industry players to consistently enhance strategic partnerships in an open, fair and mutually beneficial manner.
This is in line with the Association's hope for the government to improve the country's oil and gas governance and prioritize efforts to increase the level of investment in the sector, as highlighted by IPA President Lukman Mahfoedz during his speech in the opening ceremony.
ESDM Minister Jero Wacik affirmed his commitment to give full support to investors, providing that they agree to adopt the government's four strategies of pro-growth, pro-job, pro-poor and pro-environment, to establish a business climate that will strike the right balance between national interest and that of investors.
The opening ceremony also saw the contract signing of seven new production sharing contracts (PSC) on conventional and unconventional fields-including three shale gas PSCs, the first of their kind in Indonesia-as well as the hand over of the Plan of Development Approvals to Chevron, BP and ENI.
During the plenary session 1, all six panelists agreed that in the future, global growth will gravitate towards Asia in terms of investment and consumption, with Indonesia as an emerging player. All trends point to the fact that global growth would centralize in Asia. This includes, according to William Durban of WoodMackenzie, growth in population, global economy, energy demand and trade flow.
With such a constant increase in demand, the global oil and gas industry faces a specific challenge to come up with better technologies that will allow more efficient exploration and exploitation processes to meet the demand. Examples of better technologies, according to the Chief Economist of Schlumberger Limited Francois Durvye, are characterization to understand shale variability, drilling technology to avoid poor wells, and stimulation technology to provide better flow.
The dynamics in the Asian region was also the focus of Vice President IHS Energy Insight Asia Pacific Victor Shum's exposition. He pointed out how Asia would play a firmer role in the global oil and gas industry. Shum also highlighted the potential market reforms in gas, which included the energy security issue, the need for a sustainable energy policy roadmap and a reconsideration of subsidy vs. market based gas pricing.
Shum recognized that subsidies could not be eliminated immediately but, in the future, countries would need to gradually decrease their dependability on it. "And the process has to start now," he emphasized.
Chairman of FACTS Global Energy Fereidun Fesharaki highlighted the dramatic changes in global oil and gas industry experiences. The global oil demand will rise significantly, he said, but interestingly, there is a potential decline in the US. The bulk of the growth will come from emerging markets, such as China, Middle East and Latin America, India, and Africa, demands of which are estimated to reach 1.2-1.5 millions kb/d.
Two panelists that represented the Indonesian Government, Supriyadi (Senior Advisor to the Coordinating Minister for Economic Affairs for Business Competition) and Chatib Basri (Chairman, Indonesia Investment Coordinating Board) acknowledged the potential for Indonesia and the challenges that came with it.
Basri zoomed in further on the global shift in the industry. He said, "Even among the emerging countries, as growth in Latin America, China, and India slows, the world will start to look at ASEAN countries as potential targets for investment."
He reminded the audience that Indonesia made up 48% of the ASEAN economy and the bulk of the ASEAN population and highlighted Indonesia's potential from a global economy's prospective: "Given the current global turmoil," he said, "Indonesia has become the least unattractive country."
Basri admitted that Indonesia still had many challenges, such as corruption, which could not be dealt with overnight. "Businesses need to be ready to work in such an environment while maintaining their integrity. Businesses should also contribute to improving this condition."
Steps to improve Indonesia's business environment, according to Supriyadi, have been taken by reforming bureaucracy and streamlining law and regulations. "There are three important factors in the bureaucracy reform that must be prioritized," he said, "namely bureaucrats, infrastructure and transparency."
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.