* Indonesia to replace scrapped energy regulator BPMigas
* State energy firm Pertamina seen benefiting from change
* Investors worry about production agreements, president
seeks to allay fears
* Nationalist politics seen affecting ruling
By Andjarsari Paramaditha and Neil Chatterjee
JAKARTA, Nov 14 Indonesia's government has put
on hold all dealings with energy firms while it sets up a
replacement for industry regulator BPMigas, which was scrapped
in the latest of a series of nationalistic policy moves that
have shaken investor confidence.
BPMigas has existing contracts with oil majors including BP
Plc, Chevron, Exxon Mobil and CNOCC
and the fate of these agreements was thrown into doubt
after the regulator was declared unconstitutional on Tuesday by
a court ruling.
The ruling, however, stipulated that existing production
sharing contracts must be honoured to avoid chaos, and the
government on Wednesday sought to further allay investor fears
by saying that it would soon set up a unit to oversee the
industry while parliament works out a regulatory framework.
President Susilo Bambang Yudhoyono also assured investors
about the validity of the agreements.
"Because it takes time to do this, dealings with industry
are temporarily being stopped," Rubi Rubiandini, deputy energy
and mining minister, told Reuters.
The ruling is likely to further dent Indonesia's credibility
with foreign investors, especially as it comes after a series of
regulations for the mining sector aimed at increasing the
state's share of the resource sector.
Indonesia is Southeast Asia's largest oil producer and hopes
to increase output to over 1 million barrels per day, though
ageing fields have led to declining output in recent years. It
is also the third-ranked producer of liquefied natural gas and
the world's biggest thermal coal exporter.
"There's a lot of concern. We've got many deals on at the
moment where the people involved are very concerned," said
Ashely Wright, an energy lawyer at Norton Rose, adding it was
unclear how contracts in the name of BPMigas could continue.
"I think Indonesia will come up with some kind of
work-around solution for this, but there will be some lasting
effect, and the trustworthiness of Indonesia as an investment
location is again threatened," he said. "There will be a
POLITICS AND PERTAMINA
Industry experts say the suit against BPMigas was driven in
part by economic nationalism, which is on the rise ahead of a
presidential election in 2014 when Yudhoyono will step down.
Production-sharing agreements, which give foreign firms a
stake in a country's natural resources, are especially unpopular
with nationalists across the globe.
Indonesia's energy sector has struggled to attract
investment in recent years, leading to regular criticism of
BPMigas from both the industry and politicians.
"In the eyes of many Indonesians, BPMigas is perceived as a
wasteful super-government body that enriches corrupt officials.
Therefore, it makes an easy target for politicians wanting to
increase their popularity," said Keith Loveard of risk
consultancy Concord Consulting.
BPMigas told media it believed the ruling had put in
jeopardy about 60 contracts worth about $70 billion.
Analysts said state energy firm Pertamina, which used to
oversee contracts, could be the biggest beneficiary of the
ruling, which stipulated that any producing-sharing contracts
should be drafted between business entities rather than the
state and companies.
"There is ample reason to believe that the far more
important factor is aggressive lobbying by interests partial to
Pertamina. The state oil company will be better positioned to
benefit without BPMigas," said Kevin O'Rourke, an independent
risk analyst, adding this increased the potential for cronyism.
He said any of the possible scenarios for regulation of the
industry would be unlikely to produce better efficiency,
transparency, investment or production.
The judicial case against BPMigas was brought to court by a
group that included Indonesia's second largest Islamic
organization, Muhammadiyah, the radical Islamic movement Lajnah
Siyasiyah Hizbut Tahrir Indonesia and former government minister
Analysts said some of the claimants, and the constitutional
court's presiding judge, had political ambitions, ahead of the