Dream of a million

4
Dahlan Iskan Former Minister for State-owned Enterprises

IO – I was surprised when receiving a WA message from a good friend which informed us that the government has a target of producing 1 million barrels of crude oil/day.

That is a sacred number that is difficult for anyone to reach – except for Pak Harto, the former President in the New Order Era.

Our crude oil production continues to decline. Most recently, less than 800,000 barrels a day. As a result, we must continue to import oil. Even more and larger. Daily oil needs reach 1.2 million barrels.

“Great,” I told myself.

My friend shouldn’t have to continue the WA. That only made my excitement wilt when it was just beginning to develop.

“That is the target for 2030,” he wrote.

Oops …

Alright.

The important thing is there is a target. Even if we don’t achieve it.

But it could even be precisely achieved faster.

Why?

The current Jokowi government has already corrected the previous Jokowi’s government’s decision.

They are no longer imposing gross split rules on investors in the oil and gas sector.

The new Minister of Energy and Mineral Resources, Arifin Tasrif, made a wise decision. There is no need to revoke the previous ministerial regulation for a gross split.

Now, with these wise rules, investors may choose. There are two menus now available: the old menu (gross split) or the even older menu (cost recovery).

On paper, the gross split system is simpler. It can also eliminate the complexity of the approval process to get cost recovery.

That ‘complexity’ has made the bureaucracy in BP-Migas (now SKK Migas) obese – with all the associated diseases.

(BP-Migas and now renamed SKK Migas is the government’s oil and gas exploration regulator.)

BP-Migas has become like an independent kingdom in this country.

I have been to the office of the Head of BP Migas. When I was still somebody. I was shocked: the luxury was beyond measure.

The Head’s room takes up one full floor. With furniture that is very inappropriate – as a government agency office.

I was speechless.

I tried to understand his thoughts. For example, “To catch big fish, do not use small worms”. Or “feeding peanuts is only good for monkeys”.


Still, I did not understand.

Another strong criticism of the intricate system of cost recovery is the amount of money spent by the government, which is deducted from oil revenue sharing.

That is because any costs associated with drilling must be reimbursed. Including the cost of returning home for the weekend holidays – the return home abroad.

With a gross split system, all the complexity is gone. Anyway, “Oh investors, please drill wells for oil and gas – all costs to be borne by yourselves. If it works, you will get more than the recovery system.

If it fails, then that’s a business risk. Your responsibility.

In a cost recovery system, all costs are to be still borne by investors. But it is in fact a bailout. Later all the costs will be billed to the government – to BP-Migas.

After that, the oil and gas yield is shared – the investor gets a smaller share than the gross split system.

The result is the same.

The profit split for investors is clear: the administrative matters are simple.

The advantage for the government is clear: cutting bureaucracy – including eliminating corruption from the source.

But, in the business world, the ideal may not work. The proof is that the gross split system does not attract investors. The return on investment period is too long.

Unless, perhaps, improvements are made. The profit-sharing system in the gross split is implemented in stages.

For example, revenue-sharing for the first five years is very large. The second five years taper off. Etc.

Of course, some want a gross split, but generally those in the permit extension category only. Not the one who drills a new oil well.

The gross split system is arguably a failure.

Good, then.

We have tried the gross split system. So that the critics of the cost recovery system are no longer.

Now please choose the menu. Whether you want a gross split or a cost recovery system?

When will the “select menu” system take effect?

Not yet announced. Of course, we are no longer allowed to return to the cost recovery system of the BP-Migas era. There must be an improvement. The fat and cholesterol must be removed first. And that’s what is being done at the Ministry of Energy and Mineral Resources today.

With this menu system, can our crude oil production increase – and eventually reach 1 million barrels?

Fatty meat is dangerous, but many people like it.

Cutting off fat and cholesterol is certainly good. But if you’re not interested, what do you want?

The ambition to increase oil production is very good. But it also must be realistic.

Times have changed. The owner of money no longer wants to work as hard as before.

Now there are many new business choices. From artificial intelligence to imitation meat production.

The oil and gas business presents too many risks. The period is too long. Very unattractive – if the incentives are not so tempting.

Not to mention that they have also calculated: the future is in electricity. Not in oil anymore.

The invention of the electricity storage system will completely overhaul the world energy system.

Creating a target to reduce fuel consumption will be more futuristic than increasing oil and gas production.

But I also understand: old people have a habit of dreaming of the past.