INDONESIA - Susilo Bambang Yudhoyono.

A retired four-star military general, and a former energy minister and super-minister for political affairs and security, Susilo B. Yudhoyono on Sept. 30, 2004, won the first directly elected presidency in the history of Indonesia. He took office in October of that year. He barely had time to make the difference he had promised before a major earthquake and ensuing tsunami hit the island of Sumatra and other parts of Asia on Dec. 26, 2004, with the death toll exceeding 200,000 people.

The Indonesian economy had improved since it plunged into near chaos in 1997. The currency had been stable, inflation had fallen. But the disaster has affected the economy in various ways. Then in March 2005 came the conflict with Malaysia over petroleum-rich offshore areas at the Sulawesi Sea, which the leaders of the two neighbouring states later agreed to resolve by diplomatic means.

President Susilo, who heads the Jakarta government, involves himself in petroleum affairs, meeting with visiting CEOs of the world's majors - such as those of ExxonMobil, Chevron and Total - which are big producers in Indonesia. On March 21, 2007, he said the government had planned a 30% rise in Indonesia's oil and gas output by 2010. He said the government would meet that target by intensifying oil and gas E&P efforts and by persuading regional governments to relax regulatory restrictions on related investments.

Susilo said the projected production increase aimed to address an expected surge in domestic oil and gas demand rather than export markets. He said meeting domestic energy demand had become a national priority and promised more efforts to diversify Indonesia's economy to lessen dependence on petroleum.

It was President Susilo who in March 2006 forced the state-owned petroleum company Pertamina finally to sign a deal with ExxonMobil for a joint development of the Cepu oil and gas block in Java, which he hopes will produce 180,000 b/d of crude oil by 2010. The US major projects an output plateau of 170,000 b/d at Cepu. The president is also trying to salvage ExxonMobil's deal for the Natuna gas block (see gmt11IndnsFieldsMar12-07), which Pertamina has been seeking to offer to other companies (see DT).

Kardaya Warnika, CEO of the upstream oil and gas regulatory agency BP Migas, on March 21 told reporters ExxonMobil had proposed a pause in the development of the Natuna block, while the US major and the government negotiated a resolution to the dispute. Warnika said the government had not yet responded to the proposal, adding: "Standstill status requires both parties in the negotiation process not to bring the case to international arbitration".

Jakarta in October said ExxonMobil's legal right to the Natuna block had expired. ExxonMobil insists it retains the contractual right to continue development until 2009.

The Natuna spat has unsettling echoes of the lengthy disagreement between ExxonMobil and Pertamina over the joint operating contract for Cepu. Before its resolution in March 2006, the Cepu dispute became a symbol among foreign investors and analysts of the perils of contract enforcement in Indonesia.

President Susilo is grappling with many problems, some of which are huge such as the aftermath of the December 2004 disaster and others are of geo-strategic importance (see his profile in Gas Market Trends). As Indonesia's crude oil and condensate production has fallen to less than 1m b/d, compared to the country's oil consumption average of more than 1.2m b/d, the country has become a net oil importer since March 2004; and Jakarta has been compelled to consider whether or not it should leave OPEC. Being a member of OPEC costs Jakarta $2m per annum in fees.

While some nationalist MPs have called for the country to leave OPEC, decision makers in the petroleum sector and the ministries of foreign affairs and trade have advised against such a move. The latter group point to the close relations between Indonesia and OPEC's Middle East member-states. But MPs argue that Indonesia's exit from OPEC could give Jakarta more room to negotiate with foreign oil companies.

After a surge in fuel subsidy costs, President Susilo in October 2005 ordered a 126% rise in domestic retail prices. But remaining fuel subsidies are still a heavy burden on the state. Half of the country's demand for subsidised fuels is from the transport sector; and although retail prices rises caused fuel demand to fall in late 2005 and the first half of 2006, consumption since then has risen again.

President Susilo is said to be against privatising Pertamina, despite the fact that in 2006 he gave the state firm two years to overhaul its operations and boost profitability. Pertamina's CEO Ari Soemarno in early 2007 proposed an initial public offering (IPO) of the company by end-2008 (see his profile in down13IndnsWhoMar26-07).