Empty Words about Sovereignty
The transfer of the management of the Rokan Block from Chevron to Pertamina is delayed by a number of problems. This is the result of the government's politicizing of economic decisions.
COMPREHENSIVE and transparent business calculations should be the main guide for the government in managing the economy. Only this way will every government decision bring about the maximum possible benefit to the nation. It is highly regrettable that in its more than six years, the presidency of Joko Widodo has moved further away from this standard.
The consequences of this are now apparent in the upstream oil and natural gas sector. At a time when increased national production is needed, the plan to develop a number of huge oil and gas fields has now become uncertain. The reason being is the politicization of decisions by the Jokowi administration. One example is the Rokan Block in Riau.
The government has selected state oil company Pertamina as the new operator of the Rokan Block, starting from August 2021. This block was previously managed by Chevron Pacific Indonesia. When it refused Chevron’s request to extend their contract in July 2018, the ministry of energy and mineral resources claimed that the choice of Pertamina as the operator was entirely based on business calculations.
Subsequent events showed that the ending of Chevron contract appeared more to be a nationalization of assets rife with political interests in the run up to the 2019 presidential election. In his campaign, Jokowi frequently mentioned the government’s Rokan decision as evidence of Indonesia’s sovereignty in the energy sector. In fact, the business calculations claimed by the government have not been apparent during the transition period, which has been marked by a number of problems.
Pertamina has still not negotiated with Chevron so it will be able to use the chemical formula developed specially by the American oil and gas company to pump oil from the old wells in the Rokan Block. And Pertamina is still waiting for certainty over electricity supplies for the production facilities that have so far depended on a generator owned by Chevron.
Even if these two problems can be solved, there is no guarantee that Pertamina will be able to maintain, yet alone increase, production from the Rokan Block as the government hopes. Moreover, the impact of the government’s decision two years ago is already being felt. Production from Rokan has dropped sharply from 210,000 barrels per day in 2018 to only around 170,000 barrels per day in 2020 because Chevron has halted its investment.
Chevron has also recently decided to withdraw from the second phase of the Indonesia Deepwater Development (IDD) megaproject in the Makassar Strait. The government now faces the potential loss of millions of dollars of income due to falling production in the Rokan Block, and also needs to find new investors for the IDD project, which is likely to result in delays to the scheduled industrial production in 2025.
Chevron is not the only investor that has decided to withdraw from Indonesia. Previously, Shell Upstream Overseas Services Ltd decided to leave the Abadi Field project in the Masela Block because it took the view that the development of the giant gas field in the Arafura Sea was no longer economical. The government decision to change the Masela development scheme from an offshore to an onshore refinery meant that investment costs rose from US$15 billion to US$19.8 billion. When announcing its decision in March 2016, Jokowi claimed that the onshore scheme would have a greater effect on the regional economy around the Masela project. Now the departure of Shell has left a major question mark over the continuation of the project.
President Joko Widodo must stop making economic decisions that tend to prioritize popularity rather than business calculations. Politicization of the economy, especially with narrow nationalistic jargon, is at odds with the government’s proclaimed ambition to attract global investors.
Indonesia now desperately needs new investment to increase oil and gas production. Every year the decline in domestic production, in sharp contrast to rising consumption, means our current account deficit worsens as a result of high oil imports. The inconsistency in government policy clearly makes global investors think twice before putting their money into the oil and gas sector, which is both long-term and high-risk. The energy sovereignty that was such a big deal during Jokowi’s campaign, turned out to be only empty words.