Indonesia orders oil firms to use domestic banks

Indonesia, in an effort to boost liquidity and shore up the falling rupiah, will order oil and gas companies to keep funds for energy projects in domestic banks, according to oil and gas regulator BPMigas.

Nov 20th, 2008

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Nov. 20 -- The Indonesian government, in an effort to boost liquidity and shore up the falling rupiah, will order oil and gas companies to keep funds for energy projects in domestic banks, according to the country's oil and gas regulator BPMigas.

"This policy aims to increase our banks' liquidity," said BPMigas chairman R. Priyono. "As the oil and gas sectors use many dollars, it will also boost dollar liquidity in our domestic banks. It will have positive effects on our banks' balance of payments."

The regulation could be implemented as soon as December and would be mandatory, applying to both national and international oil and gas operators.

"Oil and gas operators must use domestic bank services, otherwise their expenses will not be reimbursed under the cost recovery scheme," Priyono said, adding that BPMigas had the authority to issue such a regulation.

Priyono said oil and gas operators might spend about $11.8 billion in 2009, and he expressed hope that "all of the transactions for these funds will be through our domestic banks."

Djoko Harsono, BPMigas deputy for finance, said, "This policy aims to help boost rupiah value against the dollar. We want contractors in energy projects to put all their US dollar funds in local banks, especially state-owned banks."

Another unsettling change?
According to the Harsono, who said the order would be imposed in 1-2 months, Indonesia plans to finance oil and gas projects worth more than $11 billion in 2008 and $12 billion in 2009.

Roberto Lorato, president of the Indonesian Petroleum Association, declined to comment on the BPMigas proposal, saying that investors and the government needed to discuss further on the matter.

Lorato did say the proposal is one of many changes taking place in the industry and that oil and gas investors were starting to feel less comfortable over the past year.

"They are starting to feel less comfortable, because they perceive a number of changes, or sometimes there are simply rumors about changes to production-sharing contracts, about changing part stakes, and about changing cost-recovery provisions, which are affecting investors comfort on what they have signed for and on what they will get," Lorato said.

Lukman Mahfoedz, project director at domestic oil and gas operator PT Medco Energy, said his company had been using domestic bank services and was satisfied with them.

Mahfoedz also urged domestic banks to participate in financing investment in the upstream oil and gas sector.

"Medco plans to spend about $300 million on its projects in 2009," Mahfoedz said. "It would be very good if domestic banks could participate in some of these projects."

Data from Indonesia's Central Bank shows that domestic bank lending for the energy sector is relatively small. At the end of August, outstanding loans for the energy sector stood at $4.2 billion, or about 3.5% of total bank credits disbursed.

Contact Eric Watkins at hippalus@yahoo.com.

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