investment in further exploration of oil resources. Oil prospects in offshore Natuna were left untapped (Hertzmark 2011). Reportedly, the market lacked, among other things, the sufficient and accurate data to motivate investments in oil exploration (Natural Gas Asia 2012). To counter this position, and in an effort to extend the life of oil resources, Indonesia is considering establishing a petroleum fund. The fund will be stipulated for in the new oil and gas law that is being drafted. The petroleum fund will be set to receive approximately 5 percent of nontax state revenues from the oil and gas sector to finance the construction of core infrastructure as well as for research and development. As a result, the government aims to offer big investors sufficient data on oil and gas reserves (PT. Bina Media Tenggara 2012).
3.3 Local Content Policies 3.3.1 Policy Objectives
As stipulated by the law of 2001, the main objective behind LCPs is to develop local capabilities that enable domestic companies to compete in the national, regional, and international landscape of OFSE. This is to be achieved in a transparent and competitive way (DGOG 2011a). Another source reflecting objectives behind LCPs are the vision and strategic directions of BPMIGAS. The regulator’s vision is to “be a proactive and trustworthy partner in optimizing the benefits of the upstream oil and gas industry for all stakeholders while becoming one of the Nation’s engines in mobilizing different economic and industrial activities” (BPMIGAS 2011b). To this end, a pillar of BPMIGAS strategy is to “prioritize domestic/regional human resources roles, and utilization of goods and services in oil and gas industry.” More specifically, the head of BPMIGAS set the aspired level of local content at 50 percent by stating in 2009 that “half of the total budget of oil and gas projects must be spent domestically in order to increase local content” (MOEMR 2009). 3.3.2 Policy Tools
To achieve the above-mentioned objectives, BPMIGAS has launched a holistic set of policy tools based on a detailed assessment of domestic capabilities. Next, we discuss LCPs aimed at raising the level and participation of local upstream capabilities, increasing domestic sourcing of goods and services, and raising the contribution of the domestic banking sector in financing procurement transactions. The following LCPs apply to upstreamrelated activities, noting that only Indonesian entities can engage in downstream activities (OSP 2011). Local Content in the Labor Force In 2005 BPMIGAS published a set of guidelines on the management of human resources in PSAs. The guidelines aimed at accelerating the development of local capabilities and increasing the share of spend on Indonesian personnel to 75 percent by 2010.38 The guidelines were extended and reviewed in 2008. Overall, BPMIGAS deploys a set of regulations related to the recruitment, training, and career progression of the workforce engaged in upstream activities. All PS contractors need to get the approval of BPMIGAS on the size and structure of the operating organization. In addition to that, the recruitment of any domestic or foreign workforce requires the approval of the regulator. In general, foreign manpower can be recruited only in case no domestic capabilities can be found. It is noted that BPMIGAS imposes targets for the recruitment of Indonesian workforce by skill level and by phase of development (that is, targets differ between development phase and production phase). Under some contracts this is done at the regional level for villages directly affected by the oil and gas operations. Similarly, companies operating in the downstream sector must give preferences to local employment. More specifically, recruitment shall be done in coordination with regional governments and priority must be given to people residing in the area of operations. Concerning the salaries and benefits extended to national staff, 38
Taking into account the costs and benefits of such actions.
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