Energy generates investor interest
AS A KEY OPEC MEMBER WITH SUBSTANTIAL OIL RESERVES AND AS THE WORLD'S LARGEST LIQUEFIED NATURAL GAS (LNG) EXPORTER, INDONESIA HAS REAPED THE REWARDS OF HIGH OIL PRICES. THE CHALLENGE NOW IS TO BUILD ON THIS ADVANTAGEOUS SITUATION BY INCREASING SECURITY CONDITIONS AND ATTRACTING FURTHER INVESTMENT TO THE SECTOR

INDONESIA POWER is on the lookout for a strategic partner to help the company meet the ever-growing demand for electricity.

At the annual convention of the Indonesian Petroleum Association in February, President Megawati Sukarnoputri acknowledged that a favorable security environment was crucial for development in the company’s oil and gas sectors and vowed to improve security conditions. The President was speaking in response to recent conflicts that had affected Exxon’s operations last year stemming mainly from increased regional autonomy, which has in turn led to low-level separatist movements in some areas. She also called on investors to take advantage of Indonesia’s new oil and gas law designed to liberalize the sector. Indonesia is the only Asian member of OPEC and ranks 15th among world oil producers. The new government is committed to creating a competitive investment climate in the energy sector, upon which it relies heavily for revenues to finance the state budget. In October 2001, the government replaced existing laws regulating the oil and gas sectors, ending decades of state monopoly that allowed the participation of foreign operators only through production sharing and work contracts.

KEN FARRELL President Director of Arutmin

Coal is another important energy sector in the country and has been staging a comeback as a cheap and reliable fuel. Bumi Resources, an Indonesian energy investment company with oil concessions in both Indonesia and Yemen, recently acquired Arutmin, an Indonesian coal operation previously owned by Australian mining company, BHP. Although the business is now owned and managed by Bumi Resources, amicable relations and a marketing partnership remain intact with BHP. Moreover, Arutmin has Australian Ken Farrell as its President Director. The venture has proven to be a success. Mr. Farrell says that Indonesia’s comparative advantages in the coal-mining sector make it a safe bet for the today’s investor. “Arutmin is in the bottom 25% in the world in terms of production costs. The free board, if you like, is very strong and that is the ultimate protection for an investor. The coal here is close to the surface and very close to the coast so transport costs are very low for us. Our competitive position, just by pure God-given characteristics, is very strong,” he states.

President Director and CEO of Bumi Resources, Ari Hudaya, reflects on the current investing climate in the country and points out the advantages of partnership ventures for the smart investor. “ Investment in this country ranges from very high risk to what we could consider to be quite safe. You just can’t paint Indonesia with one brush,” he explains. “Arutmin has taken steps to minimize the four types of risks that normally worry investors: currency, politics, production and market. As far as the currency goes, all of our transactions are in U.S. dollars and all offshore. If there were a financial crisis, the investor would actually benefit slightly with the rise in the dollar. The political risk is diminished because we are an Indonesian company so nationalism is not a threat for us. As for production, we use all world-class contractors. Production is virtually underwritten when you have the guarantee of a very large and competent contractor. The same applies to our marketing department. I believe that there are great benefits here for the discriminating investor and one way to lower risk is to have a relationship with a company like Bumi. Of course, there are plenty of people you shouldn’t partner with so you have to do your homework.”