preventing dutch diseases - United Nations in Cambodia

MINISTRY OF ENERGY AND MINERAL RESOURCESThe Republic of IndonesiaPREVENTING DUTCH DISEASES: THEINDONESIA’S EXPERIENCELuluk SumiarsoDirector General of Oil and Gaswww.migas.esdm.go.idPresented atInternational Conference on Fuelling Poverty Reduction With Oil and Gas Revenue –Comparative Country ExperiencesInter Continental Hotel, Phnom PenhKingdom of Cambodia 27 March 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008Outlines• Indonesia Petroleum Industry Overview• Role of Petroleum in Indonesia Development• Is Indonesia Experiencing Dutch Diseases?• Conclusions: Factors Contributes To Success CombatingDutch DiseaseSAFETY FIRST 2© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008INDONESIA OIL PRODUCTION TREND1.921.641.371.100.820.55Million Barel per Day0.270.00SAFETY FIRST 4© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008OIL RESERVES TRENDSAFETY FIRST 5© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008But Indonesia still Have Oil & Gas Resources:- Unexplored basins- Coal Bed Methane ResourcesSAFETY FIRST© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008SAFETY FIRST 7© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008CBM Resources: a New HopeNORTH TARAKANBASIN(17.50 TCF)CENTRALSUMATRA BASIN(52.50 TCF)OMBILIN OMBILINBASIN(0.50 BASINTCF)SOUTHSUMATRA BASIN(183.00 TCF)BENGKULUBASIN(3.60 TCF)JATIBARANGBASIN(0.80 TCF)BARITO BASIN(101.60 TCF)KUTEI BASIN(80.40 TCF)PASIR AND ASEMASEM BASINS(3.00 TCF)BERAU BASIN(8.40 TCF)SOUTHWESTSULAWESI BASIN(2.00 TCF)Total Resources = 453.30 TCF Total CBM Basin = 11(Advance Resources Interational, Inc., 2003)SAFETY FIRST 8© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008ROLE OF PETROLEUM ( OIL&GAS ) SECTOR ININDONESIA’S ECONOMIC DEVELOPMENTSAFETY FIRST© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008THE ROLE OF OIL AND GAS SECTORIN INDONESIAN ECONOMIC DEVELOPMENTINDONESIAN ECONOMIC DEVELOPMENTSOURCES OFGOVERNMENT’SREVENUESOURCES OFENERGY &FEEDSTOCKCREATINGMULTIPLIEREFFECTSPast Approach:Maximizing Government RevenueOIL & GASCurrent Approach:People Prosperity(Pro Poor - Pro Job - Pro Growth)SAFETY FIRST 10© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008Percentage of Oil & Gas Revenue, Oil Subsidy to Indonesia’s National AccountsCompare to Oil Production and Oil Price801980:Increased of Price1800Percent Contribution & US$ per Barel Oil Price706050403020100196919701974: Sharply Increasedof Production & Price197119721973197419751976197719781986: Sharply Decreased& Fluctuation of PriceSAFETY FIRST 11197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002% Contribution to Nat. Revenue Oil Subsidy Oil Production Oil Price2001-2007Declining ProductionRecoveredby Increasing Price200320042005200620071600140012001000800600Thousand BOPDSince 1998 Crisis, Oil Subsidybecome Major Nat. Spending Burden© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008IS INDONESIA EXPERIENCING DUTCH DISEASES?SAFETY FIRST© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008Conclusions: Factors Contributes to Increase PetroleumRevenue Contribution to National Accounts(A Success Combating Dutch Disease)SAFETY FIRST© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008Key Factors in Indonesia• Indonesian government was a coalition of diverse groups rather than a narrowpolitical party. This provided a vehicle for developing consensus, and reducedrivalries over how resources rents were to be spent.• The overwhelming rural character of the Indonesian economy made ruraldevelopment (poverty eleviation) policies a critical priority, the government ensuredthat significant investments reached the rural communities.• Prudent investments of oil revenues during the windfalls of 1974-1985. Thisfacilitated the growths of a tradable sector and stimulated export diversification. Bythe late 1980s, exports had diversified sufficiently to no longer be dependent on oilalone.• Industrial policies were reformed if they clashed with macro policy. Thegovernment promptly dismantled protectionist policies and reduced trade barriersduring the second half of the 1980s. Timely devaluations of the Rupiah preventedDutch Disease effects and improved the profitability of the tradable sector.• Oil production level as well as oil price was the major consideration of nationalbudget perforement.• Economic crisis in 1998 hampered oil contribution to national accounts, wind-fallprofit from oil price increased has phasing out by huge extra budget (subsidy) tosecuring domestic oil supply due to decreasing domestic power purchasing parity.SAFETY FIRST 14© DJ MIGAS 2008

MINISTRY OF ENERGY AND MINERAL RESOURCESDIRECTORATE GENERAL OF OIL AND GASMarch 27, 2008www.esdm.go.idwww.migas.esdm.go.idSAFETY FIRST 15© DJ MIGAS 2008