Interview: Hilmi Panigoro
What are your expectations for growth in the upstream oil and gas segment for the medium term?
HILMI PANIGORO: The last decade saw significant changes in Indonesia’s oil and gas landscape. Unfortunately, oil production has been in decline while consumption has steadily risen. However, the archipelago has many geological basins that have yet to be properly explored. In light of this, the government needs to improve the attractiveness of the investment climate in Indonesia by honouring the sanctity of existing contracts, streamlining bureaucracy to simplify business processes and ensuring fiscal stability. By consistently implementing these strategies, the government can achieve its target of producing 1m barrels of oil per day by 2030.
Given that a major push for the development of clean power is under way, how do you foresee the growth of this segment in Indonesia?
PANIGORO: Indonesia is well positioned to develop clean and sustainable power: the country is the largest natural gas producer in South-east Asia and has abundant renewable resources. As these are indigenous resources, this will allow the country to reduce its reliance on oil imports and strengthen its trade balance.
However, the process of renewable development in Indonesia has been slower than expected so far. While renewables costs are declining, issues surrounding tariffs, local content requirements and grid connections remain major challenges. We are committed to developing clean and renewable power for Indonesia. More integrated, consistent and investor-friendly policies and regulations will be critical for the government to unlock the country’s renewables potential.
In which ways can corporations in Indonesia’s oil and gas sector be more environmentally conscious, so as to ensure the sustainable use of natural resources?
PANIGORO: The sustainable exploitation of Indonesia’s natural resources is vital to the well-being of our people. For this reason, it is important to hold players in the energy industry accountable and ensure good corporate governance. Local companies must adopt global best practices if they want to be internationally competitive and reputable. The Company Law of 2007 and Investment Law of 2007 impose several obligations on corporations in the natural resources industries. When non-renewable resources are used, Indonesian companies have a responsibility to ensure that the natural environment is not disturbed during exploitation and is properly restored thereafter. A company’s leadership plays a guiding role in environmental and social development and the empowerment of local communities. By engaging with communities, we are able to extend our corporate social responsibility practices and develop self-reliant communities that support the UN Sustainable Development Goals.
How have regulatory changes redefined joint cooperation contracts (JCCs) in the upstream segment?
PANIGORO: Upstream JCCs, which have been fully implemented in the form of production-sharing contracts (PSCs) by the Ministry of Energy and Natural Resources, have allowed for landmark changes to Indonesia’s PSC arrangement. This means that the government and the contractor split the production costs and revenue. The contractor carries the risks and costs of exploration, while the responsibilities divided between players include financing, contract terms, domestic market obligations and dispute resolution.
The new scheme has allowed for more incentives for energy companies to explore and exploit, and created more room to control owned operations. The government aims to focus on cost efficiency and reduce delays in approval. Indonesia retains full ownership of its natural resources until the point of delivery, with the management in the hands of the regulator, SKK Migas. Better synergy between the government and contractors has allowed for a lot of time and cost savings.