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NEWS UPDATES Asean Affairs        4  March 2011

Cabotage law could repel investors

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Enforcing the country’s cabotage law could cost Indonesia 200 million barrels of oil output and upward of $13 billion in investment, an Indonesian Petroleum Association official said.

Sammy Hamzah, vice president of the association, whose members represent about 90 percent of the country’s oil and gas production, said local units of Chevron, ConocoPhilips, Total E&P and Exxon Mobil would all suffer if the government goes ahead with plans to enforce cabotage rules on May 7.

“Most of those companies’ businesses are in offshore exploitation. Most of the activities use specific ships that are mostly in foreign flags,” he said on Thursday after being summoned to a hearing of House of Representatives Commission V, which oversees transportation issues.

The cabotage law requires all maritime vessels operating in this nation’s waters to register as Indonesian-flagged vessels. It also requires oil and gas rigs to be registered here because the law classifies them as foreign shipyards.

Sammy also warned that the requirement for rigs to register in Indonesia would paralyze foreign firms’ ability to explore new offshore wells. “They will cancel investment plans worth $13 billion over three years,” he said.

Many vessels hired by international oil companies fly under foreign flags and work relatively short contracts. But to be registering as Indonesian vessels, they would have to be locally owned

The government projects $18.9 billion in investment in the oil and gas industry this year, up from $11.95 billion in 2010.

“Just decide whether the law is being revised or not, and what we have to do next,” Sammy urged legislators.

His appearance came a day after Evita Legowo, director of oil and gas at the Energy Ministry, appeared before the commission and asked it to reassess the law.

She said the country stood to lose more than $7 billion in oil and gas production if the law took effect, as well as $188 million in seismic surveying activity in the country and $2.8 billion in planned drilling.

Indonesia enacted the cabotage law back in 2005, but enforcement was delayed for years. In a 2008 revision of the law, the government said foreign-flagged vessels were allowed to operate in Indonesian waters until May 7 of this year.

“May is two months away. We are in a rush. There are several foreign ships that will leave the country by April,” Sammy said.

Jonson W Sutjipto, chairman of the Indonesian National Shipowners’ Association, said domestic shipping firms could not provide the necessary vessels for oil and gas operations, and that those ship rarely operate under an Indonesian flag.

According to the IPA, 531 vessels provided service to oil and gas companies across the nation as of March. While 12 percent of those operated under a foreign flag, they played a significant role in the sector’s activity.

Commission member Muhidin Mogamad Said, a Golkar Party legislator, said lawmakers would decide on the law next week.

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