domestic goods. In addition, foreign workers employed in Indonesia are not considered as domestic components (BPMIGAS 2011c). Table 3.13 Indonesia: Local Content of Value of Service of Equipment Use in Implementation of Physical Work and Other Services Geography of production Domestic Abroad
Ownership status
LC level 100% 100%
Domestic company or Indonesian citizen National company with more than 50 percent of shares owned by a foreign citizen or foreign company National company with more than 50 percent of shares owned by foreign citizen or foreign company
Domestic Abroad
75% 0%
Source: Based on data from BPMIGAS 2011c.
Originally, a domestic manufacturer was considered as one who produces goods on Indonesian territories regardless of the ownership status (Nordas, Vante, and Heum 2003). Today, a domestic company is one with at least 50 percent of the shares being owned by an Indonesian citizen, the Republic of Indonesia, a regional government, a state-owned enterprise (BUMN), or a regional government-owned enterprise (BPMIGAS 2011c). 3.3.7 Policy Impact on Local Content Levels
Prior to the implementation of the new LCPs on procurement of goods and services, local content levels in procurement were believed to be in the range of 10 to 20 percent (EEPC 2002). As reported by Nordas, Vante, and Heum (2003), earlier policies related to the domestic sourcing of goods and services were not seen as successful. For instance, the late 1970s policy that required international companies to partner with domestic ones in delivering OFSE has led to the establishment of multiple joint ventures. While the objective of the policy is to drive knowledge transfer, it is reported that limited transfer has been achieved. Looking at the drilling sector, 48 drilling companies were registered; however, still all offshore drilling has been led by the foreign partner of the joint venture (Nordas, Vante, and Heum 2003). Today, despite the strong monitoring system in place and the strong regulatory grip of BPMIGAS over the sector, the regulator does not formally publish metrics and analysis on local content levels achieved in the procurement of goods and services. The only publicly available sources that enable the analysis of current local content levels are the 2011 annual report by BPMIGAS and the APDN book of 2011 published by the DGOG. As per BPMIGAS’ numbers, local content levels have increased by 18 percentage points between 2006 and 2011. But and as shown in Figure 3.9, this is coupled with a nearly 50 percent reduction in upstream investments. BPMIGAS presents the value of procurement of goods and that of services that qualify as local content, Figure 3.10, without the split in total values. Figure 3.9 Indonesia: Evolution of Upstream Investments and Local Content Levels, 2006–11 Bn $
% LC
LC %
Investment
63%
40 36.8
61%
60
54%
35
55
49% 30
43%
65
50
43%
45
25
40
20
18.5
18.3
19.4 17.1
35 30 25
15
12.2
20
10
15 10
5
5 0
0
2006
2007
2008
2009
93
2010
2011