Indonesia restricts foreign investment in oil services industry

Mon May 5, 2014 6:32am EDT

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* New rules not to impact projects already underway

* Could take as long as 5 years to fully implement

* Halliburton, McDermott, China Oilfield among firms operating in country

By Wilda Asmarini and Randy Fabi

JAKARTA, May 5 (Reuters) - Indonesia has introduced new regulations restricting foreign investment in drilling, maintenance and construction in the oil industry, in an effort to give domestic firms an opportunity to better compete, government officials confirmed on Monday.

The nationalistic policies were introduced as part of a major overhaul to foreign investment rules, which President Susilo Bambang Yudhoyono on Friday said was a way to attract overseas investors.

In a 100-page document released late on Friday, it eased foreign investment regulations for several industries including pharmaceuticals, large power plants and advertising.

But it also introduced limits for foreign ownership of oil platforms, pipelines, maintenance companies, drilling firms and storage.

"It is a priority of national interest to increase competitiveness in these industries and to allow national investors (to play a role)," Farah Indriani, deputy chairwoman of investment climate and development, told Reuters.

The mining ministry said the new rules would not impact projects already underway and could take as long as five years to fully implement.

Halliburton Co, McDermott International, and China Oilfield Services Limited are among the major oil services companies already operating in Indonesia.

"It won't disturb or change any existing contracts," Naryanto Wagimin, programme director for the oil and gas directorate in the mines ministry, told Reuters.

"If it was directly implemented today, maybe no (foreign) drilling companies would do business here," he added.

Under the new rules, foreign ownership of offshore oil and gas drilling services was limited to 75 percent from 95 percent.

It also limited foreign ownership in pipeline projects and small power plants between 1-10 megawatts to 49 percent. Previously there was no such limit.

Indonesia has steadily imposed regulations to get more control over its natural resources, most recently introducing a mineral ore export ban in January to force miners to process their raw materials in the country.

Partly due to the ban, foreign investment growth in the first quarter slowed to its lowest level in nearly five years. The FDI data excludes investment in the oil industry. (Editing by Muralikumar Anantharaman)

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