Newsmaker Interview: Sammy Hamzah
‘We need to avoid suspicion if we want to develop the sector,’ says Apindo’s oil and gas chief
By Gilang Ardana
Monday, August 28, 2017
The oil and gas sector has long played a major role in Indonesia’s economic development. As a mature industry, the sector is rooted deeply in the nation’s economic activities. However, it is also true that it has attracted its fair share of controversy, and is possibly one of the most politicized industry sectors in the country.
There has been hope that the administration of President Joko Widodo could boost the industry’s recent stagnant development through reforms. But all is not running smoothly, with regulatory issues making the news in the past few months.
AmCham Indonesia reached out to Sammy Hamzah, the Indonesian Employers Association (Apindo) head of oil and gas to discuss the business view on the sector so far. Aside from his Apindo role, Sammy is also a director of the Indonesian Petroleum Association (IPA) and CEO of Ephindo Energy.
AmCham Indonesia: How do you view the current state of play in Indonesia’s oil and gas sector?
Sammy Hamzah: If we look at the oil and gas industry in general, currently it is relatively sluggish. In Indonesia, if we trace back, Law No. 22 of 2001 [and its implementing regulations] brought some fundamental changes. For instance, regulation shifted from Pertamina to SKK Migas. With all the changes, investment activities were relatively stagnant, [there were] no activities. It was not until 2005, with the push from the global oil price [above $100 per barrel], that investment started to grow.
However, even though investment activities started, there were still some regulations that were counter-productive. This problem was also due to the sectoral egos of various ministries. One ministry to another had different targets, goals and they were competing with each other. The result? There were policies among ministries that were contradicting each other. Besides that problem at the national level, there were also various regulations issued by provincial governments that led to greater uncertainty. That was what happened in the sector.
Unfortunately, I think those problems are still happening now. I’ve seen that the government is now working to fix this regulatory problem – it should be noted that Law No. 22 of 2001 has been challenged several times in the Constitutional Court. Some of its articles have been dropped, which has also become a problem for the sector. The uncertainties are a great challenge in this industry.
I want to also highlight that the industry has a history of suspicion. When thinking about oil and gas, there’s a tendency to think that there are many people cheating, playing with the rules. Thus, many government policies may be based on this suspicion. Maybe that’s why the current president has placed someone from outside of the industry as the Minister of Energy and Mineral Resources [Ignasius Jonan].
President Widodo criticized the energy minister, saying that there have been regulations issued that are contradictory to investment. In your assessment, do you think the current regulatory environment is more open and business friendly?
In my personal opinion, the reason why the president did that was because of the reasons I elaborated before: the sector is really surrounded by suspicion, so the policy outcomes are not investment-friendly.
In terms of the regulatory environment, we’ve seen how active the government is in promoting SOEs [state-owned enterprises]. From Apindo’s perspective, we do not fully agree with that. We believe that there should be a balance between the government’s role in advancing development of SOEs and the private sector. I think this applies to all sectors, not only oil and gas.
What should the balance should be?
Government support for SOEs is a common thing, but this support should not hinder the development of the private sector. Second, I think we’ve already seen that SOEs have many privileges. I think the government should think of a formula so that privileges given will not be counter-productive.
Can you highlight any other recent policies or regulations that you think are not investment-friendly?
From Apindo’s point of view, in the last few months, we have noted several regulations that have the potential to impact investment. I’d like to highlight the process around Government Regulation [GR] No. 79 of 2010 on Cost Recovery. The industry has been pushing the revision for this GR since 2011 - even the IPA has filed a judicial review in the Constitutional Court. However, the revision was only signed this year through GR 27/2017. We appreciate the effort made by the current government, but I think it came out late. The revision was expected to be released a few times when the oil price was still high. Given the current situation, and given that we have this new regulation about the gross split from which there will be no cost recovery, the revision of GR 79 is no longer relevant. I think the government should move forward creating a new GR which focuses on non-cost recovery.
What about the gross split scheme? How do you see the business response so far?
The response is mixed. Of course any changes will create a dynamic. For the companies that are already in their comfort zone in cost recovery, it will make them uneasy. I understand why the government released this regulation, they simply don’t want cost recovery to exist. However, I think the government should understand that this type of contract cannot be applied to all types of assets. Maybe for assets that are productive and contract-based, this scheme will be attractive, but for exploration assets, many say otherwise. Some investors are restraining themselves from investing. I think the government should be aware of this, to review and revise the regulation, to offer something more attractive.
From all the policies you mentioned, do you think the government has already heard enough of these views from the business sector?
I think yes. After the president criticized the regulations, the energy vice minister started to reevaluate [the regulations], inviting industry players to talk over the possible changes.
Is communication between the private sector and the government improving?
Honestly, I think it is better than the previous [administration], but it is still far away from what the industry expects. We expect a healthy discussion, a discussion based on trust. We realize that in the end the government decides, not us. However, we have an obligation to give input and share our views, and we hope it will be heard, accepted and discussed in a healthy way. I think this is what is currently lacking. We from Apindo expect that the communication will be more intensive, and we should also avoid suspicion. Trust here is really important. We just don’t want to have communication where we are invited, heard, but that’s it, with no serious follow-up.
It is all back to the problem I elaborated earlier – there’s a suspicion of business so the communication is not open and transparent. Communication based on that will not be effective. We should avoid this if we want to develop the sector.
What do you think is the best way to minimize the impact of such suspicion on sector development?
It affects the sector’s development. This is how I see it. This is already a mature industry with a significant contribution to the country’s economy, especially from the 60s to the 90s. The result of this? We already have experts or senior/former government officials who really understand managing this industry, but maybe some of them are still in the ‘old mindsets,’ with the management pattern following from the New Order era. I think we still have one or two generations in the government from that group.
After reforms, everything is now open, transparency matters. There are no more [people] cheating. If you want to work for the country, you are fully dedicated to that. So, what’s happened? What I assess is this ‘reform generation’ may still be suspicious of that senior generation.
All of this leads to a greater problem: reluctance to communicate with each other. It is especially from current government officials [who come from the reform generation] and the senior generation. This has led the current government to manage this sector based only on their own knowledge, which is possibly not thorough. The result of this, I think, is policy outputs are not based on a thoughtful assessment and are not comprehensive enough to answer the current challenges in the industry.
The concern of the current government may be valid. When they receive input, they do not fully comprehend what interests are behind it. They may worry about political interests, mafia interests and so on. The challenge is for them to be selective on which input is sincere and helpful. But back to the core problem, if they are going through this without full knowledge or with no communication based on trust, the policy output will keep on like that, not addressing the industry’s problems or being relevant.
To overcome this problem, I think several approaches need to be pursued. First, we need to have strong leadership in the sector, a leader who is ready to filter and adopt knowledge on the ground for the betterment of the sector. Communication is also important. If it is not happening, the result will be fatal. Communication with suspicion also has a fatal impact.
Second I think we should have a rembuk nasional [a national assembly] – we really need to sit together, with good intentions, without suspicion. I know this is hard, but if we are not doing this, we can’t make good policies.
What do you think about the future of oil and gas in our national energy mix?
In the National Energy Plan it is written clearly that fossil fuel will still have an important role for the next 10-20 years – the short and medium term. For the long term I think renewable will have a greater role, and that also should be developed as the foundation of our energy resources. However, we’ve also seen recent developments on the acceleration of the adoption of renewable energy, which could cut a decade from the plan for renewable energy to have an even greater role in our energy mix.
For oil and gas itself, the potential is still very huge. We can’t say that fossil fuel is now history for Indonesia – we’re still far away from that. We still have a lot of unexplored basins. We just need to have people who are brave enough to invest and do the exploration in those areas.