Indonesia leaves OPEC, unhappy with influential power

The Indonesian government, reportedly registering a protest at high global oil prices, has decided to terminate its membership in the Organization of Petroleum Exporting Countries effective yearend.

Eric Watkins
Senior Correspondent

LOS ANGELES, May 28 -- The Indonesian government, reportedly registering a protest at high global oil prices, has decided to terminate its membership in the Organization of Petroleum Exporting Countries effective yearend.

"We are pulling out of OPEC," said Energy Minister Purnomo Yusgiantoro. "If our production comes back again to a level that gives us the status of a net oil exporter, then I think we can go back to OPEC," he said.

The decision to leave OPEC was mooted earlier this month when President Susilo Bambang Yudhoyono said Indonesia was struggling to boost oil production to reach a level where "we deserve to be a member of the organization (OGJ Online, May 8, 2008)."

At the time, the president said Indonesia's oil production was "below 1 million b/d because of aging wells and that it needed about 2 or 3 years to increase production."

While such remarks were widely circulated as the reason for Indonesia's departure, Yusgiantoro suggested that his country was unhappy with its inability to influence the organization, saying, "There is also one rationale—that we are not happy with the high oil prices."

Not much influence
Despite paying its annual €2 million membership fee, Indonesia has apparently not had much influence within the organization, but high-priced imported oil has had a decidedly adverse effect on the Indonesian government.

For much of the past year, the Indonesian government has been struggling to bridge the increasing gap in price between the international market and its heavily subsidized domestic market.

Last week, the government announced it would have to raise domestic prices by 28.7% for oil products such as gasoline, diesel, and kerosine due to its inability to maintain the subsidies for the domestic market.

Since then, the government has faced a restive population, with riots erupting throughout the country.

On May 27, at least two demonstrators were arrested after about 30 students hurled stones at police lines during a protest at a university in Makassar, South Sulawesi, Elshinta radio reported.

Elsewhere, on southern Sumatra Island, angry students tried unsuccessfully to break police barricades and storm the convoy of Vice-President Jusuf Kalla as he arrived at a meeting at Lampung.

Hundreds of students and fishermen set up a roadblock on a highway out of Surabaya, the country's second largest city, and hijacked a private fuel truck carrying kerosine.

In Jakarta, police and students were engaged in a standoff throughout the morning outside the Christian University of Indonesia, where protesters had pelted police with firebombs earlier in the week.

On May 28, the government faced further problems when the Organization of Land Transport Businessmen said it would call a nation-wide strike by its members if the government rejected its proposal to be allowed to continue buying fuel oil at the old subsidized price.

Decision criticized
Former OPEC Secretary General Subroto, an Indonesian national, criticized the government's decision, stating that there was no benefit to Indonesia from leaving the organization. He said that other members would be obliged to help Indonesia if problems arose.

Victor Shum, an energy analyst with Purvin & Gertz in Singapore, however, saw no substantive downside for Indonesia's decision to leave OPEC, apart from a loss of prestige in no longer being a member.

OPEC itself declined to comment on Indonesia's departure, but a source at OPEC-member Kuwait's oil ministry downplayed the move.

"Production from Indonesia is not large and represents a small amount of OPEC's production," the source said. "OPEC will remain strong with its supplies to the world and would welcome any country with a reasonable production level to join."

Contact Eric Watkins at hippalus@yahoo.com.

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