INDONESIA - The Regional Govts.

Migas and the Jakarta government have been facing pressure from oil/gas producing provinces and regencies (regencies are sub-divisions of a province) demanding a role in the management of PSCs and other contracts in their regions. Although these regions failed to block passage of the new oil and gas law in parliament last October, they have continued to lobby the Jakarta government for more say in the distribution of petroleum revenues to the provinces and regencies.

Aceh, a province commanding the northern part of Sumatra island, has been promised up to 70% of the area's oil and gas revenues under a special autonomy law passed in 2001 by Jakarta. Aceh is a big producer of natural gas and has Indonesia's second biggest LNG complex in which ExxonMobil is a major partner of Pertamina (see Gas Market Trends Nos. 10 & 11).

In late 2002 the province's Islamist militants and the government signed a peace agreement. The petroleum-rich provinces of East Kalimantan and West Papua are also struggling for a major share of their area's oil and gas revenues.

The Consultative Forum of Oil & Gas Producing Regencies (FKDPM), set up in 2002, has members from 48 regencies and municipalities from 14 petroleum provinces across the archipelago. Among its demands, it wants to be represented on the Migas board of directors.

FKDPM keeps demanding that Jakarta establish a system for a transparent calculation of how oil and gas production revenues are disbursed to the regencies. FKDPM says this is not only for its own benefit, with many regions alleging they are being short-changed by Jakarta, but also to help allay would-be investor concerns and continuing confusion about the new oil and gas law.

FKDPM Chairman Irianto Syafiuddin, who is also regent of Indramayu in West Java, says the regions are getting a bad press and are seen as a potential threat to the industry with their demands for revenues. He was quoted as saying in mid-2002: "The regions are also viewed as having scared off investors, whereas we all know what the regions want is transparent revenue sharing according to the law".

He said under legislation passed in 1999, the regions should be receiving 6% of oil revenues and 12% for gas, while they were actually receiving only about 2%. "Therefore we request a clarification of the revenue sharing for the budget year 2002". He claimed a ministerial decree issued in 2002 contravened the revenue sharing law.

Subsequently some FKDPM members threatened to blockade oil and gas operations by way of protest. This sparked outrage from both Pertamina and government officials. Irianto was not too keen on this course of action, given that Indonesia was struggling to attract investments in its upstream oil and gas industry. He said in mid-2002: "We deeply apologise for the message that has gone out, which basically expresses our feeling of dissatisfaction for the way that central government has treated the regions in implementing policies that do not include our aspirations and have disregarded the regions as stakeholders. We will always support the oil and gas business - both upstream and downstream - by providing a feeling of security to investors".

FKDPM insists that the regions have the right to supervise oil and gas activities. FKDPM Director Drajat Hadiwijoyo was last August quoted as saying: "As a regulator, Balak (Migas) should treat regions as a counterpart so that their interests can also be accommodated within the agency".

However, Drajat he warned that FKDPM could form an independent supervisory organisation to challenge Migas' role in the regions. Drajat said by having representation in Migas, regions could be better placed to obtain compensation for any environmental damage caused by oil and gas ventures.