Indonesia Looks to Lure Investors -- Update

By Ben Otto 

JAKARTA, Indonesia--Indonesia's new economics minister said the government will take steps to create a more welcoming climate for investors by revamping contracts with oil-and-gas producers and reducing the legal uncertainty that has rocked companies such as Chevron Corp.

In the past, "we have said to investors, 'Come to Indonesia,' but they come here and their hands are tied," Coordinating Minister for Economic Affairs Sofyan Djalil told The Wall Street Journal in an interview. "By implementing good policy, we believe we can attract more investors to Indonesia."

Southeast Asia's largest economy could also further adjust its policy of subsidizing fuel prices this month, said Mr. Djalil, who oversees policy coordination among key economic ministries in Indonesia, including the departments of finance, trade, industry and state-owned enterprises.

President Joko Widodo's government aims to reduce energy subsidies and increase spending on the roads, ports and dams Indonesia needs to attract investment and boost its $900 billion economy. Last month, Indonesia raised fuel prices more than 30%, freeing up more than $8 billion for such spending.

"We are quite fortunate," Mr. Djalil said. "The price of international oil actually is decreasing, and hopefully we can adjust a policy by the end of this year or by early next year," he said, declining to offer details.

Seven weeks into his job, Mr. Djalil said the government is working to solve problems holding up major projects. He said a new land-acquisition law coming into force in January would help clear the way for a long-delayed $4 billion dollar power plant planned by Indonesian thermal-coal producer Adaro Energy and Japanese investors.

He also said the former OPEC member will soon revise its decades-old structure of oil and gas production-sharing contracts, responding to energy companies' complaints that the current contracts don't reflect the higher costs of a new era of riskier deep-water and remote-region operations.

"We have so much potential in our waters," he said. "But we have to change the [production-sharing contracts] scheme, because the scheme is very archaic already."

Oil production in Indonesia fell below 800,000 barrels a day this year for the first time in decades, after years of slumping exploration activity.

Chevron recently postponed a $12 billion deep-water gas project indefinitely after the Indonesian government missed the company's deadlines for greenlighting the project, among other issues.

"The Chevron case is very unfortunate for the country," Mr. Djalil said. "We lost an opportunity [because] unfortunately no one made a decision."

Another priority for Mr. Djalil is the recent wave of criminal cases brought by the Attorney General's Office against companies such as Chevron, Indosat and Merpati Nusantara Airlines. Employees and executives of these companies have been sentenced to prison on corruption charges in recent years.

Mr. Djalil said he is taking the legal issues facing companies "very personally," and he is working to resolve the cases.

"We want to send a message that kind of problem will never happen in the future," he said, referring to the criminal cases. However, in a recent interview with The Wall Street Journal, Mr. Widodo said he wasn't concerned about foreign companies' fears related to the Attorney General's Office.

Mr. Djalil said the government was taking other actions to boost the economy, such as studying ways to reduce the number of permits businesses need to operate and ramping up tax collection. Indonesia is betting on these moves to help it meet its goal of economic growth of more than 8% in the final two years of Mr. Widodo's term, making the five-year average of his presidency around 7%.

Mr. Djalil also said Indonesia could create a sovereign-wealth fund along the lines of Singapore's Temasek Holdings Pte. Ltd. or Malaysia's Khazanah Nasional Bhd., but such a move wouldn't occur for at least two years.

Write to Ben Otto at [e-mail]

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