The forward progress of the Jokowi government may have hit a speed bump with its decision to go against the proposal of both the field operators Shell and Inpex, the opinion of Mines and Energy Minister Sudirman Said, as well as the oil/gas regulator SK Migas to locate an LNG facility for the Masela block onshore rather than offshore. Masela is an offshore gas field in an undeveloped region of eastern Indonesia. Although Inpex and Shell considered the benefits to locate the plant onshore they ultimately concluded it was too costly-especially given current prices– and would take longer to develop than employing an offshore processing platform. Had President Jokowi not replaced his Coordinating Minister for Maritime Affairs last August with Rizal Ramli, the recommendations of SK Migas might have prevailed. Ramli, an ardent nationalist affiliated with chief patron of Jokowi’s PDI-Party, former President Megawati, had harsh words for the project once he took up his position in September. Building the facility onshore may create more jobs ultimately but at a cost that could further delay or scuttle the project. Already 16 years in the making, the project will now need new plans and feasibility studies. Minister Said accepted his defeat by promising not to prolong delays, but Inpex and Shell have said nothing and one wonders what their appetite will be to go forward with a cost structure that could be 40% higher.
Now rumors of a Cabinet shuffle have been rekindled and Minister Said, who generally takes a non-political approach to his job, has lost authority and may have to go. The alternative is also possible; Jokowi may be able to simultaneously balance two sitting ministers with opposing views. But unfortunately, now the risk factors for foreign investment have gone up, especially for companies in the extractive sector, where unresolved questions of contract extension/renewal are at the forefront. Why would a new investor take on a major project if it can be manipulated for whats looks to be political benefit? What is Indonesia’s direction in the extractive sector?
As AICC members know, I had a productive meeting with Minister Said when I was recently in Jakarta. He is quite frank about the political pressures he is under, yet he showed resolve that the government could make decisions on projects and contracts based on underlying economics without concerns over national origins or politics. His philosophy is “concern for our clients”, especially in this low price environment. Under prevailing regulations the Masela decision was his and did not have to have ratification by the President, but clearly he was overruled.
The credibility of the government to make data driven policy is once again at stake. Given the combination of rising consumption and stagnant production Indonesia-already a net importer of gasoline/crude products-is now at risk to be a net importer of natural gas by 2022. The rupiah will be under further pressure. This case sends an unfortunate signal to the new energy investors who will be needed to reverse the trend but also those in other sectors.
(The writer’s opinions do not necessarily reflect those of the American Indonesian Chamber of Commerce or its members)