Upstream Oil and Gas Investment Needs Legal Certainty and Bureaucracy Improvement

Indonesia’s oil and gas sectors still face several challenges, some related to legal certainty and bureaucratic governance. However, these aspects are essential in supporting efforts to increase oil and gas production to meet domestic needs.

The increase in domestic energy demand is mainly related to the increasing population. Since 2019, the government has set a production target of 1 million BOPD for oil and 12 million BSCFD for gas. The two sectors that are the biggest energy consumers are industry and transportation.

However, current domestic oil and gas production and investment continue to decline. In oil and gas, for example, currently, the production is only around 600 thousand BOPD, far from the set target. Furthermore, the decline in investment also needs attention, considering that achieving the planned production targets requires a large amount of investment.

The investment will later be directed to aggressive drilling activities and unconventional oil and gas exploration.

The production target will be achieved if the investment for drilling and exploration is realized. Achieving production targets will not only meet domestic energy needs but also reduce the import burden in the oil and gas sectors that have been happening so far.

Unfortunately, the attractiveness of Indonesia’s investment is still homework that needs improvement. Deputy Chairperson of Commission VII of the Indonesian House of Representatives, Maman Abdurrahman, stated that Indonesia’s lack of attractiveness in the eyes of investors was caused by two factors, including the shift in investment from big players in the oil and gas industry to the renewable energy sector, as well as the complicated requirements and bureaucracy faced.

“There are approximately 140 permits that must be obtained by oil and gas companies that want to invest in the country,” explained Maman.

Apart from the trend of the energy transition that is taking place, it is still necessary to increase oil and gas production. This is because new and renewable energy has not been able to meet domestic energy needs. Thus, oil and gas still play a central role in meeting energy needs.

Maman said simplification of licensing and accelerating the ratification of the Oil and Gas Law plays a vital role in improving Indonesia’s oil and gas investment climate.

“The draft oil and gas bill is final. Now it is in Commission VII, and we are pushing it to the Legislative Body,” said Maman.

Maman added the process of accelerating the Oil and Gas Law continues. He said that Commission VII and the Indonesian House of Representatives Expertise Body had prepared an academic paper that would soon be presented. Furthermore, the draft will enter the discussion stage with all factions and proceed to the harmonization process.

In line with Maman, IPA President Director Gary Shelby said that Indonesia is still attractive in the eyes of investors because of the enormous potential of the oil and gas industry. However, he stated that many things must be addressed by the domestic oil and gas industry stakeholders.

From the policy perspective, the government needs to issue an energy transition roadmap immediately, create legal stability, and adjust the economy of oil and gas projects. In terms of investment, there is a need for fiscal improvements, increased exploration, and a shift in investment to clean energy.

While in the technical field, what must be done is to improve the quality and quantity of data collection in the oil and gas sector and the provision of infrastructure in locations with significant potential for oil and gas resources.

Gary’s other recommendations include the need for collaboration and cooperation between ministries to produce a harmonious oil and gas investment policy. He added that there needs to be a standard view in the long-term plan for the oil and gas sector. According to Gary, investors need regulatory certainty, considering policy differences between ministries.

At the end of the discussion, Maman highlighted that the Ministry of Finance and SKK Migas meeting in one forum could open further discussions in the future to create a harmonious fiscal policy.

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