The election of a reform government promises sweeping change for the Indonesian oil industry.
The final tabulation of the June 7 parliamentary election gave the Indonesian Democratic Party of Struggle, headed by opposition leader Megawati Sukarnoputri, a 34% majority.
Sukarnoputri, the daughter of Indonesia`s first president, Sukarno, is expected to be elected president later this year if she can form a majority coalition.
The current ruling party, the Golkar party, tried to present itself as a reform party, too, but got only 22% of the vote. It also has been trying to assemble a majority coalition that would keep President B.J. Habibie in power.
The election has ensured that Indonesia will proceed with proposals to revise oil laws to allow foreign firms more flexibility in choosing their contractors (see story, p. 27). The goal is to prevent government-induced favoritism that spawned corruption.
And the new government is expected to push a proposal to strip Pertamina, the state-owned oil and gas company, of its downstream monopoly within 2 years.
Pertamina`s losses
Meanwhile, an independent audit has alleged that incompetence and corruption cost Pertamina $6.1 billion over the 2 years ended Mar. 31, 1998.
The PricewaterhouseCoopers audit resulted from the government`s promise to the International Monetary Fund to take steps to end corruption. The report said the former government gave Pertamina "guidance" that prompted it to enter into contracts and joint ventures with individuals that yielded little or no profits.
(Pertamina recently said it has cancelled 57 of those questionable contracts and is investigating another 102.)
The PricewaterhouseCoopers report said inflated contracts cost Pertamina $3.6 billion, and the oil firm lost $1.2 billion because it failed to hedge its foreign exchange exposure.
The audit said four of Pertamina`s seven refineries would lose money this fiscal year, partly because the company lacks a system to determine the profitability of its petroleum products and partly because of emergency shutdowns and the high need for maintenance.
East Timor
The oil industry will be watching a sovereignty vote in East Timor next month.
Indonesia invaded the former Portuguese colony in December 1975 and annexed it in 1976.
The United Nations never approved of the action, nor did most East Timorese.
In the election, Indonesia is offering East Timor voters "special autonomy." But if they reject the proposal, observers expect Indonesia to grant them outright independence.
The status of East Timor affects the international oil companies that have been active in the Timor Sea Zone of Cooperation.
Australia and Indonesia signed a 1989 treaty that established the 61,000 sq km zone in 1989 and agreed to split the hydrocarbon revenues. In the past 4 years, the zone has had 15 oil and gas discoveries. Much more drilling is planned.
Should East Timor win independence, the zonal treaty likely would be renegotiated, and oil firms are concerned their concessions could be affected.
