Additional Key Incentives to Reach the Target of 1 Million BPD

 

    The Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) stated that the success of achieving the target of 1 million barrels per day (BPD) in 2030 depends on additional incentives from the government. 

Blogger Agus Purnomo in SKK Migas

    Without additional incentives, oil production will only be around 500 thousand BPD in 2030.

Dwi Soetjipto

    Head of SKK Migas Dwi Soetjipto said, referring to Wood Mackenzie, Indonesia's oil and gas prospectivity rating is still very good, although a bit low. However, based on IHS Markit's research, the country's risk rating and the national fiscal system are considered to continue to decline from year to year. With the potential for oil and gas, this fiscal improvement is the key for Indonesia to work on its oil and gas prospects. Moreover, oil production has continued to decline over the last 20 years.

"So far, it is known that we have 128 basins and only 20 basins are producing. "This should be our concern whether we will just accept the decline," he said in a meeting with Commission VII on the energy sector of the House of Representatives.

    He explained, according to the projections prepared by his party, oil production could be increased to 1 million BPD in 2030 if there were flexible and competitive incentives provided. On the other hand, without incentives, the projection results show that national oil production will only reach the range of 500 thousand BPD in 2030. The same thing he said applies to gas production, although the conditions are better. Without incentives, national gas production is relatively stable in the range of 6 billion standard cubic feet per day / BSCFD until 2030. However, if you want this gas production to increase, incentives are still needed.

"Providing flexible, competitive, and case-by-case incentives does not eliminate the obligation to seek massive potential, implement aggressive and efficient work programs, and run other enablers such as completing permits, land, and others," Dwi said.

    He added that the government is committed to improving the national oil and gas investment climate, including the provision of incentives for oil and gas companies. In fact, the meeting related to this matter was directly chaired by the Minister of Energy and Mineral Resources (ESDM) Arifin Tasrif.

"There are currently intense discussions led by the Minister of Energy and Mineral Resources about this incentive and how to make Indonesia's upstream oil and gas investment increase or have a strong appeal higher than other countries, "he said.

    So far, several improvements have been made to encourage oil and gas exploration. In detail, the availability of subsurface data, data openness, promotion of potential areas through roadshow investors and virtual data rooms which are still in preparation, as well as exploration funding from a firm work commitment (COW) of US $ 1.7 billion and the transfer of the remaining KKP for open area exploration.

    Meanwhile, to maintain the economy of the oil and gas project, Dwi revealed, there are several incentives that have been implemented. First, the elimination of Liquefied natural gas / LNG State Revenue Tax according to Government Regulation number 48 of 2020. Furthermore, the elimination of the cost of utilizing state property in accordance with the Minister of Finance Regulation number 140 of 2020.

"Then fiscal flexibility through investment incentives such as full price DMO, accelerated depreciation and split changes, so far have been given to the Mahakam Block, South Natuna Sea B, and Sanga-Sanga," he explained.

    Meanwhile, the incentives that are still under discussion are postponement or reduction of indirect taxes of up to 100%, elimination of costs for utilization of the Badak LNG Plant, tax holidays for income tax (PPh), assume and discharge, and tax allowances, as well as support for upstream oil and gas supporting industries.

Strong Planning

    Member of Commission VII in the energy sector of the Indonesian House of Representatives, Maman Abdurrahman, stated that Commission VII fully supports SKK Migas, which has set a production target of 1 million BPD in 2030. However, his party reminded SKK Migas to seriously work on this target. Moreover, in the last four years, the national oil production has not increased.

"Our national oil production greatly affects our macro assumptions. I am only one, I see a downward trend in production, that the planning team must really pay attention to. We don't want to be just lip service. So, the planning team must be strengthened, "he said.

    According to the Deputy Chairperson of Commission VII in the energy sector of the Indonesian House of Representatives Ramson Siagian, in the last three years, the realization of national oil production has always missed planned by SKK Migas. In view of this, he assesses that the target of 1 million BPD seems unrealistic. For that, planning at SKK Migas must be strengthened.

"This is like wishful thinking, unrealistic. I see a reliable Enhanced Oil Recovery, not new exploration, ”said Ramson.

    Director-General of Oil and Gas at the Ministry of Energy and Mineral Resources (ESDM), Tutuka Ariadji, previously said that a production target of 1 million BPD of oil and 12 BSCFD of gas is needed to ensure energy supply in the future. This target setting refers to national energy needs. Although at the same time the government is also encouraging the development of the electric vehicle ecosystem, this does not mean that the two targets are in conflict. Moreover, the transition to electric vehicles cannot occur significantly in a short period of time.

"Currently, our oil needs are around 1.6 million BPD, production 700 thousand BPD. We even produce up to 1 million BPD, still not a lot. Even electric cars cannot suddenly develop a large amount, "he said.

Investor Daily, Page-10, Monday, Feb 8, 2021

Government Prepares 50 Oil and Gas Blocks for Auction

To increase national oil production, the government has prepared 50 oil and gas blocks to be auctioned in the period 2021-2024. This is because the national demand for crude oil will increase to 1.49 million barrels per day (BPD) in 2030.

Secretary-General of the National Energy Council (DEN) Djoko Siswanto said that an auction of oil and gas blocks is necessary to increase national oil production. This is because once all fuel oil (BBM) refinery projects are completed, the refinery's raw material requirement for crude oil will increase to 1.4 million BPD.

"So to increase oil production, the government will auction off new working areas in 2021 to 2024," he said.

In 2021, there will be 10 oil and gas blocks which are a diversion from the planned auction in 2020, and 10 oil and gas blocks resulting from a joint study that was completed last year as well. Furthermore, 10 oil and gas blocks each will be offered in 2022-2024.

"In 2024, there are also 10 working areas that can be auctioned off to increase oil production as raw material for refineries," he said.

Referring to DEN's Grand National Energy Strategy (GSEN), a total of 50 oil and gas blocks are prepared for auction. In 2021, the oil and gas blocks prepared are the West Palmerah, Rangkas, Liman, Bose, Maratua II, Merangin III, Sekayu, North Kangean, Mamberamo, and Cendrawasih VIII blocks.

In addition, there are also blocks from the joint study, namely the Arakundo Block, Offshore Northwest Aceh, Offshore Southwest Aceh, South CPP, Bertak Pijar Puyuh, Sumbagsel, Serunai, Deep Water Bali, Bali Strait, and Karaeng. In 2022, the blocks to be prepared are the Barakuda Block, Peri Mahakam, North Ketapang, East Gebang, Ranau, East Muriah, Buton, Off Pulau Moa Selatan, Ogar, and West Papua III.

Next, the blocks that will be auctioned off in 2023 are the South Barito, North West Ganal, Budong-Budong, Malunda, East Bula, Semai IV, Kei, Papeda, Warim, and Asmar blocks. The last 10 blocks planned to be offered in 2024 are East Gebang, Baronang, Sokang, Kuningan, South Matindok, Enrekang, Bukat, Bulungan, Bone, and East Sokang.

However, for 2021, the Ministry of Energy and Mineral Resources (ESDM) has only confirmed the auction of 10 oil and gas blocks, which is a diversion from the planned auction in 2020.

ESDM Ministry's Upstream Oil and Gas Business Development Director Mustafid Gunawan said five oil and gas blocks would be offered through regular auctions, namely Merangi III, Sekayu, North Kangean, Cendrawasih Offshore, and Mamberamo Blocks. Furthermore, five other blocks were auctioned through direct bidding, namely West Palmerah, Liman, Rangkas, Bose, and Maratua II.

"This work area is expected to be offered in the first quarter to the first semester of 2021. This offer is the first implementation of the contract scheme flexibility Permen, "he said.

With the flexibility of the contract scheme, he hopes that the auction will remain in demand even though the Covid-19 pandemic is still ongoing.

Still Import

Djoko explained that the government has targeted oil production to be increased to 1 million BPD in 2030 after the refinery needs raw materials. This is because, without any effort, crude oil imports will be huge in the future. In fact, with a target of 1 as well as BPD alone, crude oil imports still have to be done.

"If the oil production target of 1 million BPD is successful, we still need to import 324 thousand BPD later in 2026-2027, the peak of operational refineries, both existing and built refineries," explained Djoko.

Based on GSEN DEN data, domestic crude oil demand will increase from 909 thousand BPD in 2020 to 993 thousand in 2025, and reach 1.49 million BPD in 2030. While domestic oil production is projected to increase from a range of 742 thousand in 2020 to 2025 to 1 million BPD in 2030. However, oil imports of 338 thousand BPD are estimated to be needed in 2030 and 441 thousand BPD in 2040.

In fact, the increase in domestic oil production has already taken into account additional projects from enhanced oil recovery / EOR and exploration. Oil production from EOR activities are targeted at 18 thousand BPD in 2025, up to 106 thousand BPD in 2030, and reaching 261 thousand BPD in 2040. 

    Meanwhile, additional production from exploration is 109 thousand BPD in 2030 and 220 thousand BPD in 2040. Additional production is also derived from the acquisition of 122 thousand BPD in 2025, 150 thousand in 2030, and 170 thousand in 2040.

Investor Daily, Page-10, Tuesday, Jan 26, 2021

Termination Block Increases Pertamina's Production by 5%

The management of two 2018 termination oil and gas blocks to PT Pertamina Hulu Indonesia provides additional oil and gas production of 5% to PT Pertamina (Persero). The two oil and gas blocks are Sanga-Sanga and East Kalimantan-Attaka. 

    Bambang Manumayoso, Managing Director of Pertamina Upstream Indonesia, said that the company manages three termination oil and gas blocks, namely the Mahakam, Sanga-Sanga, and East Kalimantan-Attaka Blocks.

the Mahakam block

The production of the Sanga-Sanga and East Kalimantan-Attaka Blocks is relatively different. Of the two 2018 termination blocks, it is optimistic to obtain an additional 5% production.

Attaka Blocks

"So it is indeed not significant in the context of national oil and gas production. But for Pertamina, there is additional production of 5%, "Bambang said in Balikpapan.

Referring to Pertamina's data, until the end of last July, the Sanga-Sanga Block was recorded as producing 10,753 barrels per day (BPD) of oil and 80.7 million standard cubic feet per day/Mmscfd of gas. Meanwhile, Blok East Kalimantan-Attaka produced 13,220 BPD of oil and 69.44 mmscfd of gas per September.

Bambang continued, his party would continue to boost the termination block production through the discovery of new oil and gas potential. Therefore, It is committed to conducting exploration in this termination block. Bambang is optimistic, with the development of oil and gas technology, reserves will be found new in this area. Moreover, the three Working Areas they manage are in one area.

"This is a very large delta system and we examine the potential around it," he said.

It takes at least 1-2 years to study new exploration potentials. This is reflected in the definite work commitment promised by Pertamina. Referring to the Decree of the Minister of Energy and Mineral Resources (ESDM) No 1793K / 12 / MEM / 2018, in Sanga-Sanga, Pertamina promised to drill 4 exploration wells worth the US $ 20 million and a G & G study of US $ 500 thousand. At East Kalimantan-Attaka, the company is committed to drilling 1 exploration well worth US $ 30 million and an exploration study of US $. 250 thousand.

"It is expected that the study and exploration package will be able to add new potential reserves," Bambang said.

The Sanga Sanga block is estimated to still have a cumulative estimate of production of 258 million barrels of oil equivalent. The Sanga-Sanga work area has seven fields, namely Rhinos, Rice, Lampake, Patchouli, Mutiara, Pamaguan, and Semberah. While the East Kalimantan-Attaka Block is estimated to have a cumulative oil production of 1 billion barrels and gas of 3 trillion cubic feet.

This block has 15 fields, namely Attaka, Melangin, Kerindingan, Serang, Sapi, Santan, Sepinggan, Sedandang, Seguni, Sejadi, Yakin, Mahoni, Bangkirai, Seturian, and Beaches. 

Blogger Agus Purnomo in SKK Migas

    Previously, Amien Sunaryadi, Head of the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas), revealed that with the management of termination blocks, the increase in Pertamina's oil and gas production alone is not enough.

The reason is, if Indonesia wants no longer needs to import crude oil or fuel oil (BBM), domestic oil production must increase by the current import of around 1.3 million barrels per day.

"If you want to go up that much, you need to have at least five Banyu Urip Fields. That is, giant discoveries, not just one, "he asserted.

For this reason, his party hopes that Pertamina will also try to find a large enough oil and gas reserve. Furthermore, Bambang said, the management of the two oil and gas blocks would involve the participation of the regional government. The amount of participation rights (participating interest / PI) of the regional government has been determined by the central government at 10%. At present, the 10% PI is still being discussed together with SKK Migas.

According to data from the Ministry of Energy and Mineral Resources (ESDM), since 2017, Pertamina has been granted 100% management and ownership rights for 13 terminations of oil and gas blocks from 2017-2021. In detail, Blok Offshore North West Java (ONWJ), Mahakam, Central, Attaka, East Kalimantan, North Sumatra Offshore (NSO), Sanga-Sanga, SES, Tuban, Ogan Komering, and Rokan.

the Rokan Block by Chevron

With the ownership of 12 terminated oil and gas blocks, without Blok Rokan, Pertamina is projected to gradually control 39 percent of national oil and gas production starting next year. At present, the national oil and gas production is recorded at around 2 million barrels of oil equivalent per barrel (boepd). This means that Pertamina's role in maintaining national oil and gas production will be even greater.

Investor Daily, Page-10, Tuesday, Oct 30, 2018

When the Balikpapan Entrepreneur Saves Hope

The expansion project of Pertamina Refinery Unit (RU) V Balikpapan, East Kalimantan, which was launched earlier this year, apparently made local businessmen anxious

So far, Breaking ground preparation has been done but until now, none of the local companies have been given the opportunity to compete as contractors in the mega project. This project lasted 2 years with a value of US $ 5 billion or around Rp 65 trillion.

"No single local company has been involved in the project," said Chief of Chamber of Commerce and Industry (CCI/Kadin) Balikpapan Kisser Arafat.

He seemed pessimistic that the mega project would be able to absorb the entrepreneurs and local workers as previously hailed by the central government.

"It's possible that a national company, or another company outside Balikpapan who will work on it entirely, we just become spectators or just become subcontractors." he continued.

Yasser rate with a minimal role, certainly difficult for a company to produce a significant effect on the region. Yaser gives an illustration, if only 5% of the value of the project involves a local company as a contractor, the impact can already be felt. That is, from Rp 60 trillion then at least there is a chance of Rp 3 trillion can spin within the region.

However, with time, Yasser said, every effort will be made to fight for the fate of local businessmen and workers who want to contribute positively to the construction of the 360,000 barrel refinery. Hearing or Hearing Meeting (RDP) with Commission VII of the House of Representatives of the Republic of Indonesia in charge of the field of mineral energy is included in the nearest agenda of Kadin Balikpapan.

"I've had this communication with Mr. Ihwan Datu Adam [member of DPR Rl from East Kalimantan], and he will welcome us."

The Kadin team plan will do a hearing to the House of Representatives in the near future, said the leader of Anugrah Group. Yasser sees that the competence of local businessmen and workers is no less competitive than those from outside the region.

According to him, if it is not prepared for human resources or the company, it would be self-conscious not to take part in a project that is expected to absorb about 25,000 more labor.

Kadin Balikpapan, he called, actively invited the participation of 50 entrepreneurs through various programs to increase competence, one of them through gathering.

"So that in time the RDMP [Refinery Development Masterplan Program] is running, we are ready to participate. Very regrettable, for example, if you have to bring 1000 welders from outside Balikpapan. "

Please note in the RDMP project in Balikpapan, Pertamina has established PT Wijaya Karya (WIKA) as the executor, and state-owned banks as a source of working capital financing.

As is known, the expansion project of the Pertamina refinery in Balikpapan consists of two stages, each targeted to be completed in 2019 and 2021. Faster 22 months than previously targeted.

CAPACITY

The capacity of the oil processing infrastructure is targeted to increase from 260,000 to 360,000 barrels per day. In addition to capacity, fuel products from the refinery will also be upgraded to emissions standards. From the original still Euro 2 to Euro 5. 5% of the value of the project, said Yasser will have a significant impact on Balikpapan economy.

"The value even exceeds APBD this year," he explained.

In addition to the House of Representatives, he claimed to have addressed this issue to the municipal government of Balikpapan and the House of East Kalimantan. Both, Yasser said, have the same commitment to engaging local firms in the project. Without such efforts, Pertamina's RDMP will not have a significant effect on the economy. Even with refinery operations later on.

Meanwhile, Minister of Energy and Mineral Resources (ESDM), Jonan Ignatius on the sidelines of the inauguration of the Jangkrik Field gas production facility in Handil Baru. Regional Kutai Kartanegara, previously confirmed, next month, Pertamina RDMP in Balikpapan must have entered the stage of groundbreaking. According to him, this megaproject is a commitment of the central government.

The ESDM Ministry has been written to President Joko Widodo in order to directly review the projects that are also implemented in some other areas.

The project's RDMP Project Coordinator Imam Sunarto recently confirmed that the construction process in the RDMP plant development plan will begin early next year. The company is currently preparing land for development.

Bisnis Indonesia, Page-9, Monday, Dec 11, 2017

ESDM Auditing of Inpex Funds US $ 1.6 M

A letter from the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) was sent to the editor of KONTAN. The letter numbered SRT-0138/SKKMA0000/2017/SO is related to the development of Abadi Field, Masela Block.

Blogger Agus Purnomo In SKK Migas

 The SKK Migas letter was addressed to Inpex Masela Ltd. dated 22 May 2017. In the letter, the government agreed to all Inpex's wishes in developing the Masela Block. The Ministry of Energy and Mineral Resources (ESDM) confirmed the letter. ESDM admits that the government is encouraging Inpex to immediately conduct a preliminary design study of the Abadi Field, Masela.

Abadi Field, Masela Block.

There are five important points in the letter. First, the government is willing to replace US$ 1.6 billion in cost recovery. Second, SKK Migas approved a production capacity of 9.5 million tons of liquefied natural gas (LNG) per year and pipe gas of 150 mmscfd.

Blogger Agus Purnomo In SKK Migas

 Third, Inpex received a seven-year change of time, from the contract expiring in 2028 to 2035. This is because since 1998 the policies in the Masela project have often changed. Fourth, SKK Migas will discuss the addition of the Masela contract for a period of two to 10 years. Fifth, the location of the onshore LNG plant around Yamdena Island, West Saumlaki, East Saumlaki, and Kore on Selaru Island.

 Arcandra Tahar, Deputy Minister of Energy and Mineral Resources confirmed that SKK Migas' letter to lnpex is being audited, including approval of a refund of approximately US$1.6 billion to Inpex Masela Ltd.

"It doesn't necessarily mean that the letter given is approved, but it will be audited first," said Arcandra.

 The replacement of US$ 1.6 billion is not in the form of cash, but cost recovery when the Abadi Field is already in production. According to the contract, Masela Block will continue to use cost recovery profit-sharing instead of a gross split.

 Meanwhile, Fahmi Radhi, an Energy Observer from Gadjah Mada University, said that the state should not spend US$ 1.6 billion for Inpex Masela Ltd. as compensation for the presidential decision to move the refinery from onshore to offshore.

"Reimbursement of that amount does not guarantee that the Masela Block will start operating immediately. Inpex Masela Ltd. still needs to recalculate for offshore operations," he added.

Unfortunately, Amien Sunaryadi, the Head of SKK Migas, did not answer KONTAN's confirmation about the replacement of the funds.

 Deputy for Procurement Control of SKK Migas, Djoko Siswanto, only answered briefly. "Sorry I don't deal with that anymore," he said.

 Inpex Corporation Senior Communication Manager Usman Slamet also did not answer the question of the change in funds. The government targets that within three months there will be gas buyers for the Masela Block.

"We prioritize domestic first," said Arcandra, Sunday (30/7).

 Now, the government is waiting for lnpex and Shell to do a pre-Front End Engineering Design (feed).

"The SKK Migas letter is ready, they should start working," said Arcandra.

The Masela Block is managed by PT Inpex Masela Ltd.(65%) and Shell Upstream Overseas Services Ltd (35%).

Kontan, Page-14, Monday, July 31, 2017

Trial “Gross Split

    In front of many stakeholders in the oil and gas sector, Deputy Minister of Energy and Mineral Resources (ESDM) Arcandra Tahar is like a lecturer in a classroom. By scribbling a black marker on flipchart paper, he explained to the audience about the gross split or the distribution of oil and gas revenue based on gross production. This concept will replace the profit-sharing contract model with a cost recovery component or recoverable operating costs.

    Arcandra explained, for an oil and gas working area that has won a tender winner, the government and the contractor who won the tender agreed at the beginning about the amount of profit sharing. He divides it into three stages, namely base split (basic division), variable split (variable or division component), and progressive split (progressive profit sharing). The government has determined the base split as a benchmark.

    So far, in the concept of cost recovery, the oil profit-sharing model is known to be 85 percent for the state and 15 percent for contractors. Meanwhile, gas revenue sharing is 70 percent for the state and 30 percent for contractors. Arcandra illustrates the base split with 70:30, which is 70 percent of the state share and 30 percent for contractors. 

    After the base split is agreed upon, enter the variable split section. The components consist of the type of working area (conventional or unconventional), carbon dioxide content, sulfur content, local content usage, production stages (whether using water, steam, or chemical injection methods), and oil prices.

    If the type of work area is non-conventional, the government provides incentives in the form of additional profit sharing on a scale of 1 to 5 percent to contractors. Likewise, if the CO2 and H2S content are high, the percentage of local content is high, and if the chemical injection method is used to drain the oil, the contractor gets additional incentives for profit sharing. Especially if the price of oil is high, for example above 100 US dollars per barrel, the government will be enlarged.

    Furthermore, for the progressive split, the higher the oil and gas production, the contractor does not get incentives. Then, does the gross split concept guarantee that oil and gas production in Indonesia will increase? Could be, but not the only guarantor. This is Arcandra's explanation. The government plans to start implementing this concept in 2017.

    Currently being prepared for legal protection. However, the government emphasized that the production sharing contract with the cost recovery scheme will be maintained until the contract expires. The Gross split applies to new oil and gas contracts. Why was the profit-sharing contract abandoned? The concept of cost recovery is believed to create inefficiencies.

Blogger Agus Purnomo in SKK Migas

    The calculations are also complicated. It is difficult for contractors to be expected to operate efficiently because they are guaranteed to be reimbursed by the state. The Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) noted that this year alone, the cost recovery figure was US$11.4 billion. Meanwhile, the state revenue is 9.29 billion US dollars and the contractor's share is 3.175 billion US dollars.

    It is true that the contractor's assets that have been paid for in cost recovery become state assets. However, the value of assets in the form of operational equipment will definitely decrease in value. According to Arcandra, the gross split with the above scheme has never been implemented in any country. Now, it's just a matter of proving whether this concept is the best for Indonesia. Let time test it.

Kompas, Page-17, Wednesday, Dec 21, 2016

Oil and Gas Industry Efficiency

    

    Minister of Energy and Mineral Resources (ESDM) Ignasius Jonan challenged the oil and gas sector industry players to be efficient. This efficient practice will be applied to the gross split concept of profit sharing or oil and gas revenue sharing based on gross production. According to Jonan, the gross split concept is a directive from President Joko Widodo, who asks the upstream oil and gas industry in Indonesia to be efficient.

    If the concept of cost recovery (operating costs that can be returned) which has been abandoned by a number of countries is maintained, it will be difficult for Indonesia's upstream oil and gas industry to be efficient. It is the people who bear the cost of recovery. With a gross split with no cost recovery, the company must be efficient. However, for contracts with cost recovery, they are still respected until the expiration date,” said Jonan.

    Amien added that controlling cost recovery is more difficult than increasing Indonesia's ready-to-sell oil production. This year, it is estimated that the cost recovery to be paid to contractors is 11.4 billion US dollars, while the state's share is 9.29 billion US dollars and the contractor's share is 3.175 billion US dollars. Talking about the gross split described by Jonan, Syamsu believes that efficiency will be the key to winning the competition in the Indonesian oil and gas industry.

    The role of technology is very important in terms of efficiency. The efficiency that has been carried out by Pertamina during quarter III-2106 resulted in a net profit of 2.83 billion US dollars. Satya does not object to the government applying the gross split concept as long as there is still state control. 

    This concept is expected to prevent budget waste by contractors which must be borne by the state in the concept of cost recovery. The Ministry of Energy and Mineral Resources (ESDM) is preparing legal protection for the gross split concept which is planned to be implemented starting 2017. This concept is intended for new oil and gas contracts.

Kompas, Page-19, Tuesday, Dec, 20, 2016

Jokowi: Freezing OPEC Members is No Problem

    President Joko Widodo believes the government's decision to temporarily freeze Indonesia's membership in the Organization of the Petroleum Exporting Countries (OPEC) will not cause problems. According to the President, the decision was taken to secure the State Revenue and Expenditure Budget (APBN).

"If you have to leave, there's no problem," said Jokowi, after opening the National Leadership Meeting of the Indonesian Chamber of Commerce and Industry, in Jakarta.

    Indonesia decided to temporarily suspend its membership in OPEC during the organization's 171st session in Vienna, Austria. The government delegation, Minister of Energy and Mineral Resources (ESDM) Ignasius Jonan, said Indonesia left because the OPEC meeting decided to reduce crude oil production to 1.2 million barrels per day (BPD) excluding condensate. OPEC asked Indonesia to cut domestic oil production by 5 percent (equivalent to 37,000 barrels per day).

    In fact, the need for state revenue is large, and in the 2017 State Budget Plan, it is agreed that oil production in 2017 will only decrease by 5,000 barrels compared to production in 2016," said Jonan, in a written statement.

OPEC said the production cuts would take effect in January 2017. Russia, which is not an OPEC member, agreed to cut its oil output to restore slumping world oil prices. According to Jonan, for Indonesia, which has been an oil importer since 2003, the OPEC agreement is not profitable. This is because production cuts will lead to price increases.

    The President assessed that the temporary suspension of Indonesia's membership in OPEC was appropriate to protect the state budget. In addition, the suspension of membership in OPEC is not a new issue for Indonesia. We used to be members and never become members. We enter again because we want information on price fluctuations and stocks in each country," said the President.

Indonesia once left OPEC in 2008 and entered again in 2015. Coordinating Minister for the Economy Darmin Nasution believes that Indonesia's exit from OPEC will have a good impact on state revenues.

    This is because the role of Indonesia's oil production is not significant to international oil conditions. If we are outside, it's not too different," he said.

 

According to Darmin, the only advantage of being a member of OPEC is the negotiation of world oil production and prices. Member of the House of Representatives Energy Commission Kurtubi predicts the OPEC agreement is just a tactic to influence market psychology without realizing it.

    Moreover, Indonesia was only asked to cut 37 thousand barrels per day. If we don't reduce production, it won't affect prices either," he said.

    But Kurtubi supported the government's decision to temporarily freeze OPEC membership instead of leaving permanently. This is because Indonesia still needs information on industrial developments and oil prices from OPEC. He advised the government to be aware of the potential for price increases.

Koran Tempo, Page-6, Friday, Dec 2,2016