Economy and Business

Tourism Returns to Bali

Bali reopened its doors to domestic travelers last Friday, 31 July 2020. The start of a long-weekend of Idul Adha celebrations saw an encouraging start of 4,000 passengers landing in Bali, fueling hope that, slowly and surely, the Island’s tourism industry will soon revive. (Bali Discovery Update Report)

WTO Complaint Moving Forward

Indonesia’s World Trade Organization (WTO) complaint against the European Union trade barriers is moving ahead. It is a significant moment for the region’s largest agricultural export. Indonesia has successfully pushed for the WTO to form a panel in its complaint against the EU’s revised Renewable Energy Directive (RED II) that restricts biofuel imports from Indonesia. (Jakarta Post)

Flexibility on PSC Contracts

Indonesia announced over the weekend that it had made revisions to a 2017 law that will give oil and gas investors more flexibility when choosing their contract options for exploration. Indonesia’s oil lifting has been dropping for many years as productive fields age, contracts with foreign oil companies are not renewed, and investment incentives not as strong compared to other regions in the world. The revisions, which came into effect on July 16, allow contractors to choose between different sharing contracts including the “cost recovery” and “gross split” systems in an effort to boost investment. Indonesia adopted the “gross split” scheme for oil and gas production deals in 2017, in which contractors shoulder the cost of exploration and production in exchange for retaining a bigger portion of the oil and gas they recover. That represented a shift from the “cost recovery” scheme used previously, in which the government reimbursed the exploration and production costs borne by the contractors in exchange for a higher share of companies’ oil and gas earnings. “The government, through the Ministry of Energy and Mineral Resources, is officially allowing flexibility for investors to choose the form of oil and gas cooperation contracts,” the energy ministry said in a statement on Saturday. Under the revised law, expiring contracts no longer have to be converted to gross split production sharing contracts from cost recovery contracts. In the case where state oil company PT Pertamina or its affiliates are appointed, the ministry will determine the cooperation contract.

The Indonesian Petroleum Association welcomed the move. “Every oil and gas project has different characteristics. Whether we use gross split or cost recovery [schemes] very much depends on each project’s characteristics,” said IPA executive director Marjolijn Wajong in a statement on Monday.

The effect of the rules change may not be as influential as the government expects because of increased nationalization. Legacy production sharing contracts held by foreign oil companies (i.e. Total, Chevron) are being turned over to the state oil company, Pertamina. Meanwhile, the Oil and Gas Companies Association (Asper Migas), whose members are exclusively Indonesian businesses, said that investors were more deterred by Plan of Developments (POD) approval delays and hidden costs than by the limited choice of PSC schemes types. “Cost recovery and gross split [schemes] are essentially the same thing,” said Asper Migas chairman John Karamoy, also on Monday. “Investors want it such that their margins do not change no matter how regulations change. That’s legal certainty from an investor’s perspective.” (US News and World Report and Jakarta Post)

Inflation at an Historical Low

Inflation in Indonesia has slowed down in July to the lowest level in more than two decades, as consumer demand has yet to recover despite the government’s decision to reopen the economy. The country’s consumer price index, the broadest measure for gauging the prices of goods and services in the country, rose 1.54 percent in July from the same month a year ago, data from the Central Statistics Agency (BPS), showed on Monday. That compared to 1.96 percent inflation in June.

Import Substitution Policies Reaffirmed

The Ministry of Industry (Kemenperin) is preparing a road map to reach the target for 35-percent import substitution this year to reduce import dependency on capital goods and raw materials. The move is also aimed at completing the industrial structure in the country. “We are in the process of formulating a road map for the import substitution program. The output and outcome will be import substitution, which we are striving to reach 35 percent by 2022,” Minister of Industry, Agus Gumiwang Kartasasmita, said in a statement received in Jakarta on Wednesday. Under the program, measures are being taken to implement import substitution in industries that recorded large import values in 2019. They include machinery, chemical, metal, electronics, food, electrical equipment, textiles, motor vehicles, metal goods, and rubber and rubber goods industries. “This (import substitution) is what we will handle through various policies. We believe this effort will encourage the deepening of the industrial structure, increase investment, and promote the absorption of new workers,” the minister said. (ANTARA)

Moody’s Predicts 20% Earnings Drop for Indonesian Companies

Moody’s Investors Service has projected that the total earnings of Indonesian companies under the agency’s watch would decline by at least 20 percent this year from last year, deteriorating their credit quality, as Covid-19 pandemic suppresses demand. Companies in oil and gas, mining and property, and textile sectors were among the hardest hit by the pandemic, the agency said. “We expect key financial metrics across our rated portfolio to weaken in 2020 before recovering gradually in 2021, although earnings will still be lower than in previous years,” says Stephanie Cheong, a Moody’s Analyst, said in a statement on Thursday. “Refinancing risk is increasing because around 42 percent of rated high-yield US dollar bonds will mature by December 2022; the greatest risk will be faced by companies in the property and mining sectors,” Cheong said.

Australia Fast Tracks Huge Solar Project

Australia’s plan to fast track the approval process for a A$22 billion ($16 billion) project to export solar power to Singapore could help it secure financing earlier than planned, the project’s boss said on Thursday. The ambitious Australia-ASEAN Power Link project, run by Singapore-based Sun Cable, plans to supply solar power to Singapore and eventually Indonesia via the world’s longest subsea high voltage cable. It would consist of a 4,500-km (2,800-mile) cable linked to a 10 gigawatt solar farm as well as an energy storage facility of up to 30 GWh in the Northern Territory. Both the solar farm and the battery facility would be the biggest of their kind.

Car Sales Up

National car sales jumped more than threefold in June to 12,623 units from a record low 3,551 units a month before, according to Association of Indonesian Automotive Manufacturers (Gaikindo) data compiled by diversified conglomerate PT Astra International. Despite the rebound, sales in June were almost 79 percent lower year-on-year (yoy).