Investments in Indonesia Energy May Surpass US$16 billion
The Energy and Mineral Resources Ministry said Wednesday that investments in the oil and gas sector may exceed US$16 billion this year, up 18.5 percent from $13.5 billion last year.
The ministry’s director general for oil and gas, Evita Herawati Legowo, said that the target was reasonable considering the government had offered several incentive packages for oil and gas industry investors.
“We’ve prepared incentives for investors committed to building refineries in Indonesia. A detailed explanation is available in the 2008 government regulation on tax incentives,” she said outside a hearing with the House of Representatives’ Commission VII overseeing energy.
She said the ministry planned to add fiscal and tax incentives to boost investments this year. She expected the additional incentives would be launched in the second quarter of 2011.
“We haven’t completed discussions regarding the additional incentives, but we hope we can unveil the final result by midyear,” she said.
The 2008 government regulation on income tax incentives for investors stipulated that investors intending to build oil and gas refineries are eligible for an income tax reduction of 5 percent of their total yearly investment for the first six years of the project.
Investments in the oil and gas industry have shown steady growth in the past four years.
In 2007, the investment realization was only $10.08 billion. That increased by 28.5 percent to $12.96 billion in 2008. In 2009, investments hit $112.18 billion and climbed to $13.5 billion last year.
To ramp up this year’s investments, the government will offer 39 new oil and gas fields through regular tenders, 11 fields through direct offers and 10 coal bed methane fields to interested local or foreign investors.
This year, the government is upbeat they will lure more investments in the sector. In late December, a government regulation was issued on cost recovery for oil and gas production sharing contract holders operating in Indonesia.
Evita said earlier that the newly issued regulation would end legal uncertainties over cost recovery and taxation. She added that the breakthrough could boost potential investors’ confidence in conducting businesses in the country.
However, the government may miss its high investment target this year due to a counterproductive regulation termed the cabotage principle.
The 2008 law on shipping obliges all vessels operating in Indonesian waters, including those used for oil and gas drilling, to be owned domestically. The regulation is scheduled to take effect on May 1 of this year.
The ministry said it had asked the House of Representatives to hold a special meeting to discuss the possibility of postponing the implementation of the cabotage principle.
The implementation might reduce the country’s oil production by 276,000 barrels per day (bpd) and cut gas production by 20 percent, upstream oil and gas regulator BPMigas said.
That situation would only make it more difficult for the country to increase its oil production from 954,000 bpd last year to a projected 970,000 bpd this year.
Source: The Jakarta Post