Emir Nurmansyah and Oene J Marseille of Ali Budiardjo Nugroho Reksodiputro in Jakarta speak to Sam Duke about the shifting landscape in the Indonesian oil and gas sector
What in your view have been the significant trends of 2013 in the Indonesian oil and gas sector?
In a continuation of the general trend over the past few years, Indonesia’s oil and gas sector continues to see a decline in oil production and rising gas output. Although there has been no major discovery in the sector recently, it is hoped that exploration in the relatively more challenging and remote eastern part of the country could spur additions to future reserves.
The year was also marked with increased nationalistic sentiment in this sector. There are calls for more domestic allocation of gas rather than for export. Foreign operators experienced increasing pressure to cede their interests to domestic companies. The proposed new law on oil and gas being discussed in the legislature could yield to this nationalistic momentum. Expect this sentiment to carry on through during this election year.
What has been the impact of these trends on the upstream, downstream and midstream sectors of the industry?
The expected decline in domestic oil production puts pressure on the government to further reduce, and eventually eliminate downstream fuel subsidy in order to ensure a healthy state budget. The upstream sector is transitioning to the more challenging (and capital intensive) deep-sea exploration of the eastern part of the country.
What impact do you expect the proposed new regulations restricting foreign investment in the oil and gas sector to have if they are implemented?
Foreign investors don’t like regulatory uncertainty. This proposed restriction adds to this uncertainty. The yet-to-be released oil and gas law also contributes to the ambiguity and has reduced investor’s confidence. I think this lack of clear, settled regulation played a part in investors adopting a wait-and-see attitude, especially in committing large capital investment to the country.
If the new regulations are enacted do you expect to see more work originating from domestic companies?
Already there are many smaller fields in Indonesia that are being managed quite well by domestic companies. It is certainly hoped that domestic companies have developed enough technical and management expertise, as well as capital capability to operate world-class fields in Indonesia. However it is probably realistic to say that many of these works would still be done in partnership with foreign enterprises.
How big an issue is corruption for foreign investors when considering entering into Indonesian projects?
It is one factor among many that investors need to be aware of and deal with in investing here. However the nation is committed to combating corruption and is making steady progress.
Considering their role in regulating the oil and gas industry what impact do you think the corruption investigations into SKK Migas will have on the level of regulation present in the industry?
It certainly doesn’t help with the overall confidence level of the regulatory climate here.
What are some of the regulatory issues and complications that come up most often in Indonesia oil and gas operations?
Having to deal with multiple governmental agencies at multiple levels is quite challenging. The regional governments played an increasingly prominent role in managing oil and gas assets in its area, which in turn translate into more government agencies and officials to deal with in this sector.
Have there been any other legislative / policy changes over the past year that clients should be aware of?
As noted above, a proposed new law on oil and gas is being discussed in the legislature. The sooner the law gets enacted the better, as investors are looking for a stable regulatory environment, and it is hoped this new law will provide one.
If there was one law or regulation, related to the energy industry, that you could change or abolish in Indonesia, what would it be?
A more coordinated effort between national and regional government in the joint management of assets would be welcome. Currently the law encourages regional government participation in oil and gas asset in its area without setting up clear rules and a dispute resolution mechanism to mediate conflicts (which occur often).
In which sub-sectors of the oil and gas industry do you expect to see the greatest growth in 2014?
2014 being an election year makes it especially difficult to predict. Investors are generally adopting a wait-and-see approach until a new government is formed and policy is clearly communicated to the public. Additionally in the oil and gas sector specifically, the public is still waiting for the new law to be issued. The oil and gas sector is notoriously capital intensive and deploying it requires investor confidence and regulatory stability. Where the sector grows the most depends upon these two factors.
Ali Budiardjo Nugroho Reksodiputro
Emir has worked with Ali Budiardjo Nugroho Reksodiputro (ABNR) since 1989 and has been a partner since January 1 1997. He graduated from the Faculty of Law, University of Indonesia in 1989 and in 1993, he earned an LLM degree from the Faculty of Law at Bond University in Australia. He has, since 1993, dealt with a large number of transactions involving privatisation, corporate restructuring and project and debt financing. He has been involved in most of the restructuring projects in which ABNR is involved; both as a member and as the leader, of the ABNR team. He has also acted as the advisor of IBRA in several restructuring and asset disposal projects.
Oene J Marseille
Ali Budiardjo Nugroho Reksodiputro
Oene graduated from the Faculty of Law, University of Amsterdam, the Netherlands, in 1995 and did a Masters of Law at Duke University, School of Law, Durham, North Carolina. He worked for almost six years with NautaDutilh in its offices in Rotterdam and New York and their associated Jakarta office, and also with White & Case in Jakarta and Singapore office from August 2001 until April 2005. He is involved in the following practices: corporate, foreign investment, capital markets, corporate and financial restructurings, project finance, energy and resources, aircraft financing, leasing and M&A.