International Labour Office Geneva Industrial relations and social ...

5 downloads 0 Views 3MB Size Report
countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva .... List of ILO Conventions ratified by Indonesia, as at 20 October 2009.
Vorking Paper No. 269

International Labour Office Geneva

Industrial relations and social dialogue intheipiLand gas industries in Indonesia Ratih Pratrwi Anwar Muyan ja Ssenyonga

r

.

|;:i

WP. 269

SECTORAL ACTIVITIES PROGRAMME

Working Paper

Industrial relations and social dialogue in the oil and gas industries in Indonesia (based on a fíeld study)

by Ratih Pratiwi Anwar and Muyanja Ssenyonga

Working papers are preliminary documents circulated to stimulate discussion and obtain comments

International Labour Office Geneva 2009

Copyright © International Labour Organization 2009 First published 2009 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Permissions), International Labour Office, CH-12II Geneva 22, Switzerland, or by email: [email protected]. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit www.ifrro.org to find the reproduction rights organization in your country.

ISBN: 978-92-2-123258-2 (print) ISBN: 978-92-2-123529-9 (print pdf) ILO Cataloguing in Publication Data The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications and electronic products can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. Catalogues or lists of new publications are available free of charge from the above address, or by email: [email protected]. Visit our web site: www.ilo.org/publns. Printed in the ILO

Preface Oil and gas are essential components of modern, industrialized civilization, and as societies and economies grow, so does their oil and gas industries. The oil and gas industry has revolutionized human lives, improving our standard of living. The industry’s products constitute building blocks at every level of production and consumption in key sectors of economic life. A stable supply of oil and gas is needed to sustain continued development of our economies. The oil and gas industries are a highly capitalized industry. Much of the manual work has been replaced by automation, but significant parts of the operation still rely on human input. Sound employer-employee relations are therefore crucial to the stable production and supply of oil and gas. The Sectoral Activities Programme of the ILO commissioned a field study on the topic of industrial relations in the oil industry as a follow-up to the National Tripartite Meeting on Promoting Good Industrial Relations and Social Dialogue in the Oil and Gas Industries, from 29 to 30 October 2007 in Puncak, Indonesia. The aim of this paper, the fourth in the series, is to explore some practices in industrial relations and social dialogue in the oil sector in Indonesia. The paper was prepared by Ratih Pratiwi Anwar and Muyanja Ssenyonga. They are to be congratulated for their work and contribution to the improvement of industrial relations in the oil and gas industry in Indonesia. The ILO hopes that this study will provide an opportunity to consider how industrial relations can be improved in the interests of both decent work and greater prosperity of the industry.

Elizabeth Tinoco Director Sectoral Activities Department (SECTOR) International Labour Office (ILO)

WP-External-2010-01 -0060-1 -En. doc

ill

Contents Page Preface Introduction

ix

Acknowledgements

ix

1.

Overview of the oil and gas industries in Indonesia

3

1.1.

General review of Indonesia’s oil and gas industries

3

1.2.

Contribution of oil and gas industries to the national economy

4

1.3.

Crude oil and natural gas reserves and production

6

1.4.

Investment in the oil and gas industries

7

1.5.

Oil and gas companies operating in Indonesia

8

1.6.

Workforce

9

1.7.

Employers’associations

12

1.8.

Legal frameworks regulating the oil and gas industries

13

1.9.

Structure of the oil and gas industries in Indonesia

14

2.

3.

1.10. Some important issues in the oil and gas industries in Indonesia

15

Working conditions in the oil and gas industries in Indonesia

16

2.1.

Overview of wages in the oil and gas industries

16

2.2.

Wage levels

17

2.3.

Wage systems

18

2.4.

Working-time arrangements

19

2.5.

Occupational safety and health

20

2.6.

Human resources development

22

2.7.

Career paths

23

2.8.

Corporate restructuring and its implications for working conditions

24

2.9.

Outsourcing and contract workers

25

Fundamental workers’ rights in the oil and gas industries in Indonesia 3.1.

4.

27

Legal frameworks concerning fundamental workers’ rights in Indonesia, including in the oil and gas industries

27

3.2.

Trade unions

28

3.3.

Collective labour agreements

31

3.4.

Industrial dispute resolution

34

The role of social dialogue in Indonesia

38

4.1.

Benefits of social dialogue

38

4.2.

Structure of social dialogue in Indonesia

39

WP-External-2010-01 -0060-1 -En.doc

V

5.

4.2.1.

Tripartite institutions

39

4.2.2.

Bipartite institutions

40

4.3.

Practices of social dialogue in Indonesia

41

4.4.

Social dialogue in the oil and gas industries in Indonesia

42

Summary

44

Bibliography

47

Tables Page Table 1.

Contribution of the oil and gas industries to government revenue in Indonesia, 2001-08

4

Table 2.

Contribution of the oil and gas industries to Indonesia’s GDP, 2003-08

5

Table 3.

Contribution of the oil and gas industries to Indonesia’s foreign trade, 2000-06

5

Table 4.

Crude oil and natural gas reserves in Indonesia, 2001-05

6

Table 5.

Volume of oil production in Indonesia, 2001-05

7

Table 6.

Volume of oil and natural gas production in Indonesia, 2001-05

7

Table 7.

Total number of production and non-production workers in the oil and gas industries in Indonesia, 2001-06

9

Table 8.

Table 9.

Number of production and non-production workers in oil and gas mining and quarrying and refineries in Indonesia, 2000-06

10

Number of domestic and foreign workers in the oil and gas industries in Indonesia, 2000-06

12

Table 10. Number of domestic and foreign workers in oil and gas refineries in Indonesia, 2000-06

12

Table 11. Regulations on occupational safety and health in the oil and gas industries in Indonesia

20

Table 12. Major mergers and acquisitions in the oil and gas industries in Indonesia, 1997-2005

24

Table 13. List of ILO Conventions ratified by Indonesia, as at 20 October 2009

27

Table 14. Legal frameworks for fundamental workers’ rights in Indonesia

28

Table 15. Number of social dialogue institutions in Indonesia, 2005-06

39

VI

WP-External-2010-01-0060-1 -En doc

Figures Page Figure 1. Domestic workers in Indonesia’s oil and gas industries, 2004-07

10

Figure 2. Foreign workers in Indonesia’s oil and gas industries, 2004-07

11

Figures. Structure of oil and gas industries in Indonesia

14

Figure 4. Average monthly wage of production workers, by sector, 2003-05

17

Figure 5. Average monthly wage of non-production workers, by sector, 2003-05

18

WP-External-2010-Ol-0060-1-En.doc

vii

Acknowledgements This field study was carried out with the assistance and support of the following: BPMIGAS; the Second Group on Industrial Relations in Oil and Gas Upstream Activities in Indonesia; Chevron Indonesia Company; Total Indonésie; China National Offshore Oil Corporation (CNOOC); five trade unions in the oil and gas industries from Chevron Indonesia Company, Total Indonésie, CNOOC, Chevron Pacific Indonesia and ExxonMobil; two trade unions from the services companies Halliburton and Schlumberger; a trade union from the downstream company PT Pertamina; the Federation of Chemical, Energy, Oil and Natural Gas Mining, and General Workers’ Unions (FSPKEP), and the Federation of United Trade Unions for Mining and Energy (FSP-PPE). The authors wish to express their sincere thanks to those organizations and companies for their cooperation.

WP-Extemal-2010-01-0060-1-En.doc

IX

Introduction Crude oil is one of the most significant components of modem, industrialized civilization. The growth in the oil and gas industries shows a close correlation with the growth in societies and economies. The oil and gas industries have revolutionized human lives and improved living standards: oil and gas, and their related products, form the basis of our daily lives and are essential to all forms of economic activity. Many of the significant areas of crude oil and natural gas exploration and production depend on human input. Thus, sound industrial relations are crucial to stable production and supply of crude oil and natural gas. The production and refinery of oil and gas in Indonesia have undergone important developments in recent years, amid numerous challenges. Professional workers in the oil and gas industries in Indonesia are in significantly short supply, owing to increasingly high demand for these workers in national and international labour markets. There have been radical changes to national laws and employment regulations in the oil and gas industries, which have led to increased administrative and compliance obligations. Furthermore, oil and gas workers, and their trade unions, have had to manage the rising use of contract and agency workers in the industries. These ehallenges have necessitated considerable input from Government, employers and workers. This paper will show that social dialogue plays a key role in helping to resolve these challenges. This paper has been prepared by Ratih Pratiwi Anwar, researeher at the Center for Asia Pacific Studies at Gadjah Mada University, and by Muyanja Ssenyonga, visiting researcher at the Center. The aim of the paper is to provide an overview of the oil and gas industries in Indonesia and of industrial relations in those industries. The paper will highlight the key elements of good industrial relations, one of which is the importance of social dialogue in promoting and nurturing a mutual sense of respeet, trust and confidence among the social partners and the Government in the oil and gas industries. This paper is the result of a field study conducted between April 2008 and August 2008. Information for the field study was gathered by disseminating questionnaires to oil and gas companies and trade unions, and from interviews with central and regional authorities and numerous oil and gas companies and trade unions in the oil and gas industries in Indonesia. Focused group discussions, interviews and field observations were carried out with the support of Indonesia’s Upstream Oil and Gas Supervisory Agency (BPMIGAS) and the Second Group on Industrial Relations in Oil and Gas Upstream Activities in Indonesia. The following organizations and companies participated in the field study: Chevron Indonesia Company; Total Indonésie; China National Offshore Oil Corporation (CNOOC); five trade unions in the oil and gas industries from Chevron Indonesia Company, Total Indonésie, CNOOC, Chevron Pacific Indonesia and ExxonMobil; two trade unions from the services companies Flalliburton and Schlumberger; a trade union from the downstream company PT Pertamina; the Federation of Chemical, Energy, Oil and Natural Gas Mining, and General Workers’ Unions (FSP-KEP), and the Federation of United Trade Unions for Mining and Energy (FSP-PPE).

WP-External-2010-01 -0060-1 -En.doc

1

1.

Overview of the oil and gas industries in Indonesia

1.1.

General review of Indonesia’s oil and gas industries Indonesia has been recognized for many years as a country in South-East Asia that is blessed with significant reserves of crude oil and natural gas. Indonesia reports crude oil reserves of 8.6 billion barrels, with proven oil reserves of 4.3 billion barrels and potential reserves of 4.3 billion barrels in 2005. ' in 2005, Indonesia ranked twentieth among world oil-producing countries, accounting for about 1.4 per cent of the world’s daily production. Statistics from the Directorate General of Oil and Gas (MIGAS) of the Ministry of Energy and Mineral Resources show that crude oil production averaged 934,800 barrels per day (bbl/d) in 2005, down from 965,800 bbl/d in 2004. ^ The production of crude oil in Indonesia declined from about 1.6 million bbl/d in 1995 to about 1 million bbEd in 2006. ^ At the end of 2008, oil production in Indonesia was projected at around 970,000 bbl/d. '' To cope with the declining crude oil and natural gas output, the Government of Indonesia launched the “Blue Print Energy Policy 2025”. These guidelines show what Indonesia must do to improve energy supply security. They include diversifying energy sources, increasing the transparency of energy pricing, and improving energy efficiency. ^ Most of Indonesia’s proven oil reserves are located offshore, and the majority of oil fields are situated in the central and western parts of the country. Recently, the focus of exploration has been moving to the frontier regions, especially in eastern Indonesia. Most oil reserves, though yet to be proven, may lie in the geologically complex pre-tertiary basins in that part of the country. Indonesia is abundant in natural gas. Indonesia’s natural gas reserves are currently estimated at around 190 trillion cubic feet (tcf), including proven natural gas reserves of 90.3 tcf Most of the country’s natural gas reserves are found offshore, and not all of these reserves are commercially viable. In 2004, Indonesia ranked thirteenth among the world’s natural gas producers, and was the largest exporter of liquefied natural gas. * However,

' Embassy of the United States, Jakarta, Indonesia, Petroleum report Indonesia 2005-06, June 2006, p.l2. ^ Statistics from the Directorate General of Oil and Gas (MIGAS) of the Ministry of Energy and Mineral Resources of Indonesia, www.esdm.go.id (accessed 20 Nov. 2009). ^ Chris A. Prattini, Indonesian Petroleum Association: President’s Report - 2007, Thirty-sixth General Meeting, 5 Dec. 2007, p. 12. “12 alasan RI keluar dari OPEC”, in Investor Daily Indonesia, 30 May 2008. ^ Asia Pacific Energy Research Centre, “Indonesia; Recent energy trends and energy policy”, in APEC Energy demand and supply outlook 2006: Vol. II: Economy review and outlook results by economy, pp. 33-38, www.ieej.or.jp/aperc/2006pdf/Outlook2006/ER_Indonesia.pdf (accessed 20 Nov. 2009). ® Embassy of the United States, Jakarta, Indonesia, 2006, p. 32. WP-External-2010-01-0060-1 -En.doc

3

MIGAS reports that natural gas production in Indonesia declined from 1,303,917,204 million British Thermal Units (MMBtu) in 2004 to 1,079,571,013 MMBtu in 2007. ’ Oil and gas refining is an important activity of the oil and gas industries. The Government of Indonesia owns all nine refineries in the country, which are operated by the state oil and gas company PT Pertamina. In 2004, their combined refining capacity was 1.06 million bbl/d. According to government figures, in 2004 PT Pertamina’s refineries operated at an average of 95 per cent of their total production capacity or about 1 million bbl/d. Indonesia’s refining capacity has remained unchanged for the past decade. Indonesia has been a net importer of oil and petroleum products since July 2004, because its refineries have not developed to a level sufficient to meet domestic consumption. As a result, around 30 per cent of its refined products are imported. The Ministry of Energy and Mineral Resources has estimated that Indonesia needs about US$15 billion to improve refinery facilities by 2009 in order to reduce the country’s reliance on imported refined products. *

1.2.

Contribution of oil and gas industries to the national economy The oil and gas industries have made a significant contribution to Indonesia’s economic development. In fact, the Government of Indonesia’s revenue depends heavily on the oil and gas industries (table I). However, in recent years the domination of oil and gas in the national economy has been weakening. In 2001, government revenue from the oil and gas industries accounted for 34.59 per cent of total government revenue; however, it declined sharply in 2002 and 2003, to 25.95 per cent and 23.57 per cent respectively. ’ The contribution of the oil and gas industries to government revenue increased slightly in 2004, fell in 2005, and increased again in 2006. It fell again in 2007, following continuous decline in oil production and a downward revision of projected oil prices from US$64/barrel (2006 revised budget) to US$63/barrel (2007 budget). In 2008, despite the rise in global oil prices, government revenue from the oil and gas industries declined to 17.82 per cent.

Table 1.

Contribution of the oil and gas industries to government revenue in Indonesia, 2001-08 2001

2002

2003

2004

2005

2006

2007

2008

104.14

77.48

80.46

108.20

137.67

191.68

186.64

159.5

- Tax revenue (trillion Rp)

23.10

17.47

18.96

22.95

34.975

n.a.

n.a.

41.6

- Non-tax revenue (trillion Rp)

81.04

60.01

61.50

85.26

102.70

n.a.

n.a.

117.9

Government revenue (trillion Rp)

301.08

298.53

341.39

407.90

532.67

659.12

694.09

895.00

Total oil and gas revenue (trillion rupiah (Rp))

’ Ministry of Energy and Mineral Resources of Indonesia, liquefied natural gas production, www.esdm.go.id (accessed 20 Nov. 2009). * Embassy of the United States, Jakarta, Indonesia, 2006, pp. 23-26. ^ Embassy of the United States, Jakarta, Indonesia, Petroleum report Indonesia 2002-03, Mar. 2004, p. 13. World Bank, Indonesia public expenditure review 2007: Spending for development: Making the most of Indonesia ’s new opportunities, 2007, p. 4. 4

WP-External-2010-01-0060-1-En.doc

Ratio of oil and gas revenue to government revenue (%)

2001

2002

2003

2004

2005

2006

2007

2008

34.59

25.95

23.57

26.53

25.85

29.08

26.89

17.82

n.a. = data not available. Sources: Data on oil and gas revenues from the Directorate General of Oil and Gas (MIGAS), www.esdm.go.ld; data on the Government of Indonesia’s revenue from 2001 to 2005 from Bank Indonesia, Indonesian financial statistics, Vol. VIII, No. 9, September 2006; data on the Government of Indonesia’s revenue from 2006 and 2007 from Act No. 14 of 2005 and Act No. 18 of 2006, both concerning national expenditure and revenue budget; data on the Government of Indonesia’s revenue from 2008 from the Fiscal Policy Board of the Ministry of Finance, and authors’ calculations. The contribution of the oil and gas industries to Indonesia’s gross domestic product (GDP) in 2003-07 showed an overall decrease. In 2003-04, the contribution of the oil and gas industries to GDP was around 10 per cent and it decreased to about 7 per cent in 2006-07 (table 2). Table 2.

Contribution of the oil and gas industries to Indonesia’s GDP, 2003-08 2003

2004

2005

2006*

2007**

2008***

GDP from oil and gas (billion Rp) 155 696.5

150 220.2

145 553.4

143 704.3

142 534.9

268 794.3

1 577 171.3

1 656 516.8

1 750 815.2

9.87

9.07

8.31

Total GDP (billion Rp) GDP from oil and gas (%)

1 847 292.9 1 963 974.3 1 561260.5 7.78

7.26

17.22

* Provisional figures; ** Very provisional figures; *** Up to the third quarter of 2008, estimated figures Note: data at 2000 constant price. Source: Bank Indonesia, Indonesian financial statistics, Vol. VIII, No. 9, September 2006, and authors’ calculations. Indonesia has had a positive balance of trade in oil and gas for the past five years (table 3). Exports of crude oil and natural gas have generated significant income. During 2000-06, exports of oil and gas accounted for about 24.11 per cent of Indonesia’s aimual export revenue. Income from oil and gas exports fell in 2001 and 2002 as a result of the decline in the price of crude oil. Rising world oil prices since the second quarter of 2002 have led to increases in export revenues from the oil and gas industries. Since 2002, the export value of oil and gas has continued to increase, reaching US$23.67 billion in 2006. Table 3.

Contribution of the oil and gas industries to Indonesia’s foreign trade, 2000-06 Year

Exports (US$ million)

Imports (US$ million)

Oil and gas

Total

Oil and gas (%)

Oil and gas

Total

Oil and gas (%)

2000

16 925

65 408

25.88

6 509

43 593

14.93

2001

14128

57 365

24.63

6 204

37 532

16.53

2002

14 244

59165

24.08

7150

38 359

18.64

2003

15 233

64109

23.76

8 457

42196

20.04

2004

17 682

72164

24.50

12136

55 009

22.06

2005

19 968

86179

23.17

17 330

69 705

24.86

2006

23 673

103 964

22.77

17183

78 393

21.92

Average 2000-06

24.11

19.85

Source: Bank Indonesia, Indonesian financial statistics, Vol. VIII, No. 9, September 2006.

WP-External-2010-01 -0060-1 -En.doc

5

1.3.

Crude oil and natural gas reserves and production Data provided by MIGAS indicates that oil reserves declined from 9.7 billion barrels in 2002 to 8.6 billion barrels in 2005 (including both proven and potential reserves). With no newly discovered oil reserves, Indonesia’s oil reserves will be used up within the next 10-20 years. " Natural gas reserves are four times greater than oil reserves and will therefore be able to supply domestic demand for the next 62 years, at current consumption rate. Natural gas reserves increased during 2000-05, to about 190 tcf, comprising 99.7 tcf potential reserves and 90.3 tcf proven reserves at the end of 2005 (table 4). As of January 2007, Indonesia’s oil reserves (including condensate) were 8.4 billion barrels, comprising 4.0 billion barrels proven reserves and 4.4 billion barrels potential reserves, and natural gas reserves were 164.99 tcf, comprising 106.01 tcf proven reserves and 58.98 tcf potential reserves.

Table 4.

Crude oil and natural gas reserves in Indonesia, 2001-05 Gas reserves (trillion cubic feet)

Oil reserves (billion barrels)

Potential

Proven

Total

Potential

Proven

Total

2000

75.56

94.75

170.31

4.49

5.12

9.61

2001

76,07

92.10

168.17

4.66

5.10

9.76

2002

86.29

90.30

176.59

5.03

4.72

9.75

2003

86.96

91.17

178.13

4.40

4.73

9.13

2004

90.57

97.77

188.34

4.31

4.30

8.61

2005

99,70

90.30

190.00

4.30

4.30

8,60

Sources: Data for 2000-04 from the Directorate General of Oil and Gas (MIGAS), cited in Indonesian Petroleum Association and PricewaterhouseCoopers, The urgency of building competitiveness to attract oil and gas investment in Indonesia, September 2005; data for 2005-06 from Embassy of the United States in Jakarta, Indonesia, Petroleum report Indonesia 2005-06, June 2006, As previously stated, oil and gas production in Indonesia has been declining since 2001 (Tables 5 and 6). According to statistics from MIGAS, Indonesia’s oil production (including condensate) decreased from 1.3 million bbl/d in 2001 to 1.06 million bbl/d in 2005. During the same period, natural gas production fluctuated from 7,690 million standard cubic feet per day (mmscfd) in 2001, to a peak of 8,644 mmscfd in 2003, before declining to 8,278 mmscfd in 2004 and 8,179 mmscfd in 2005.

" Indonesian Petroleum Association and PricewaterhouseCoopers, The urgency of building competitiveness to attract oil and gas investment in Indonesia, Sep. 2005, p. 25. Indonesian Petroleum Association and PricewaterhouseCoopers, 2005, p. 26; Embassy of the United States, Jakarta, Indonesia, 2006, p. 32. BPMIGAS, “Produksi minyak dan gas bumi meningkat signifikan”, www.bpmigas.com (accessed 20 Nov. 2009). ''' Indonesian Petroleum Association and PricewaterhouseCoopers, 2005, p. 24. 6

WP-External-2010-01 -0060-1 -En doc

Table 5.

Volume of oil production in Indonesia, 2001-05 Growth in crude oil and condensate production (%)

Growth in crude oil production (%)

131.8

-6.80

-7.54

1 013.0

133.8

-8.21

-9.36

1 094.4

965.8

128.6

-4.57

-4.66

1 062.1

934.8

127.3

-2.95

-3.21

Year

Crude oil and condensate (1 000 bbl/d)

Crude oil (1 000 bbl/d)

Condensate (1 000 bbl/d)

2001

1 340.6

1 208.7

131.9

2002

1 249.4

1 117.6

2003

1 146.8

2004 2005

Source: Directorate General of Oil and Gas (MIGAS), www.esdm.go.id. Table 6.

Volume of oil and natural gas production in Indonesia, 2001-05 Year

Natural gas

Oil Production (1 000 bbl/d)

Growth (%)

Production (mmscfd)

Growth (%)

7 690

2001

1 341

2002

1 249

-6.80

8 318

8.17

2003

1 147

-8.21

8 644

3.92

2004

1 094

-4.57

8 278

-4.23

2005

1 062

-2.95

8179

-1.20

Source: Directorate General of Oil and Gas (MIGAS), www.esdm.go.id. Indonesia’s oil industry is facing significant challenges and both the Government and the oil production companies need to address those challenges. One of those challenges is the imbalance between oil production and consumption rate. Indonesia’s oil production has declined sharply since 1995; however, the consumption rate has increased, and, since 2004, Indonesia has no longer been self-sufficient with regard to oil. Despite some increases in the number of production sharing contracts (PSCs) and the development of new oil fields, oil and gas production still relies on ageing oil fields. The Government is now attempting to increase its oil production to 1.2-1.5 million bbl/d by the year 2010, in the hope that Indonesia can once again become an oil-exporting country. The increase in oil production is possible with the operation of new oil wells such as Blok Cepu, optimization of old oil fields, and introduction of incentives packages.

1.4.

Investment in the oil and gas industries Investment in the oil industry has declined owing to uncertainties such as security issues, high taxes, the implementation of the newly endorsed Act No. 22 of 2001 concerning oil and natural gas, and when the Government of Indonesian intends to develop

Chris A. Prattini, 2007, p. 4. Blok Cepu is one of the largest oil reserves in Indonesia, with a total volume of about 600 million barrels. L. Aurora, “Oil self-sufficiency by 2010: Gov’t”, Bloomberg, in The Jakarta Post, May 8, 2008. WP-External-2010-01 -0060-1 -En. doc

7

new oil fields. 2004.

As a result, some oil companies postponed investment during 2002 and

To attract more investment in oil and gas exploration and production, the Government of Indonesia has changed the procedures for exploration and production contracts with multinational oil and gas companies. It has also developed more attractive exploration contracts by simplifying tender procedures. In the past, foreign oil companies could only receive drilling concessions after submitting an official tender. With the new procedures, the Government can receive proposals for tender without having to wait for formal tendering sessions. Since January 2008, incentives have been offered, such as zero-per-cent tariffs and tax exemptions for importing rigs, oil production instruments and other related materials. In the past, companies had to pay value-added tax and income tax of up to 10 per cent and 2.5 per cent, respectively, on rigs and oil drilling equipment. However, the oil and gas industries consider that government policies to eliminate the differing import taxes between fixed and temporary exploration materials may reduce exploration costs. The Government also attempted to increase the capacity of oil and gas support services. Presidential decrees No. 76 and No. 77 of 2007 state that foreign companies are allowed to acquire up to 95 per cent ownership of offshore oil and gas drilling in the eastern part of Indonesia, onshore oil and gas drilling, oil and gas facilities maintenance and operation services, as well as engineering, procurement, and construction (EPC). Meanwhile, there are no limitations to foreign ownership of core businesses, i.e. downstream and upstream. The Indonesian Petroleum Association (IPA) stated in its 2007 report that increasing production volume and maintaining its continuous growth was an urgent task for Indonesia. One of the most important ways to achieve that goal is to increase investment in oil exploration and speed up discoveries of new oil fields. To attract foreign and domestic investment, the IPA said that it was essential to create a competitive investment climate, to keep investors’ trust, to maintain fiscal flexibility, and to secure cooperation between the Government and the oil and gas companies.

1.5.

Oil and gas companies operating in Indonesia Oil and gas production in Indonesia is mainly carried out by multinational oil and gas companies. Data from MIGAS show that eleven key producers operate in Indonesia. Chevron is the largest of these, followed by Total Indonésie, CNOOC, Unocal, Exspan, ConocoPhillips, Petrochina, BP, Bumi Siak Pusako, Virginia Indonesia Company (VICO),

Embassy of the United States, Jakarta, Indonesia, 2004, p. I4. Indonesian Petroleum Association and PricewaterhouseCoopers, 2005, p. 24; Embassy of the United States, Jakarta, Indonesia, 2004, p. 14; Embassy of the United States, Jakarta, Indonesia, 2006, pp. 12-13. Embassy of the United States, Jakarta, Indonesia, 2006, p. 14. Suhartono, “Pemerintah hapuskan bea masuk dan PPN barang Migas”, I Jan. 2008, www.kompas.com/verI/Ekonomi/07I2/18/I6I733.htmI (accessed 20 Nov. 2009). “Perpres tingkatkan kapasitas jasa penunjang Migas nasional”, 5 July 2007, www.kapanlagi.com/h/0000179976.html (accessed 20 Nov. 2009). Chris A. Prattini, 2007, p. 4. 8

WP-External-2010-01-0060-1-En.doc

and ExxonMobil. The combined oil production of these 11 companies accounted for about 93 per cent of Indonesia’s total oil production in 2004. Chevron controls about 46 per cent of total oil production in the country. Six multinational gas companies operate in Indonesia: Total Indonésie, ExxonMobil, VICO, BP, Unocal, and ConocoPhillips, together producing about 90 per cent of Indonesia’s total natural gas production in 2004. Total Indonésie is Indonesia’s largest gas producer, accounting for about 30 per cent of Indonesia’s total natural gas production in 2004. According to Effendi Siradjuddin, Chairman of the Association of Indonesian Oil and Gas Companies (Aspermigas), the participation of private Indonesian companies in the oil and gas industries is limited, despite Indonesian firms having a relative mastery of the technology in the sector and quality human resources.

1.6.

Workforce According to Indonesia’s Central Bureau of Statistics, the number of workers in the oil and gas industries fluctuated between 2001 and 2005 (table 7). The total number of workers, including production and non-production workers, dropped sharply from 35,449 in 2002 to 32,393 in 2003. Several reasons might explain this reduction in the number of workers, including the cancellation of a large number of investment plans in 2002; the voluntary resignation programmes of some oil companies; and a number of mergers and acquisitions of oil and gas companies in Indonesia between 2000 and 2002. Since then, the number of workers in this sector has increased to 39,527 in 2006.

Table 7.

Total number of production and non-production workers in the oil and gas industries in Indonesia, 2001-06 Year

Oil and gas mining companies (workers)

Growth (%) Oil and gas refinery Growth (%) Total companies (workers) (workers)

Growth (%)

2001

21 346

21.88

13476

8.15

34 822

16.17

2002

22 200

4.00

13 249

-1.68

35 449

1.80

2003

20 596

-7.23

11 797

-10.96

32 393

-8.62

2004

26183

27.13

12 973

9.97

39156

20.88

2005

26 266

0.32

13 261

2.22

39 527

0.95

2006*

26 266

13 261

39 527

* Provisional figures. Note: Permanent workers and foreign workers. Source: Central Bureau of Statistics, Indonesia (BPS), Mining statistics for petroleum and natural gas, 2002, 2003-04, 2004-05 and 2005-06. The number of production workers in the oil and gas industries exceeded that of nonproduction workers in 2000-05. Table 8 shows the development of workers in oil and gas

Embassy of the United States, Jakarta, Indonesia, 2006, p. 14. “Govt told to limit oil contracts with foreign firms”, in The Jakarta Post, 31 July 2006. Embassy of the United States, Jakarta, Indonesia, 2004, p. 14. Embassy of the United States, Jakarta, Indonesia, 2006. WP-External-2010-01-0060-1 -En.doc

9

exploration and production, including mining and quarrying and refineries, between 2000 and 2006. Table 8.

Number of production and non-production workers in oil and gas mining and quarrying and refineries in Indonesia, 2000-06 Year

Oil and gas mining and quarrying Production workers

Non-production workers

2000

10 863

6 651

2001

12 589

2002

Oil and gas refineries Subtotal

Total

Production workers

Non-production workers

Subtotal

17514

7 907

4 553

12 460

29 974

8 757

21 346

8 685

4 791

13 476

34 822

12 525

9 675

22 200

9170

4 079

13 249

35 449

2003

11 028

9 568

20 596

7 895

3 902

11 797

32 393

2004

13 820

12 363

26183

9219

3 754

12 973

39 156

2005

13 027

13 239

26 266

9 437

3 824

13 261

39 527

2006*

13 027

13 239

26 266

9 437

3 824

13 261

39 527

* Provisional figures. Note: Permanent workers and foreign workers. Source: Central Bureau of Statistics, Indonesia (BPS), Mining statistics for petroleum and natural gas, 2004-05 and 2005-06. Hie oil and gas industries in Indonesia have created many work opportunities. Based on data from MIGAS, the number of Indonesian workers, between 2004 and 2007, reached more than 3.4 million, with foreign workers accounting for more than 14,000. During this period, there was a decrease in the number of Indonesian workers in the oil and gas industries in Indonesia; however, the number of foreign workers decreased in 2006 and 2007 (figures 1 and 2). Figure 1.

Domestic workers in Indonesia’s oil and gas industries, 2004-07 3,650,000 3,616.488 3.600.000 o> o

3.550.000

0> £1 E 3 z

3.500.000

3,54,5,229

3.450.000

3,400,000 2004 Source: Directorate General of Oil and Gas (MIGAS), www.esdm.go.id

10

WP-External-2010-01-0060-1-En doc

Figure 2.

Foreign workers in Indonesia’s oil and gas industries, 2004-07 25,000 21,000

20,142

20,000 16,456

0> I

15,000