Prefers Mercantile to ‘The Real Industrialist’

(PETROMINER No. 11/November 15, 2010, page 14-15)

The application of local contents in the upstream oil & gas sector is expected to be able to stimulate Indonesians to be more self-reliant in managing their oil & gas resources. But it all depends on the good will and synergy of all stakeholders of the upstream oil & gas industry in Indonesia.

That was the comment given by oil & gas observer Gamil Abdullah in an interview with PETROMINER concerning local content (the level of local component/ TKDN).

What definitions are used in gauging TKDN?

TKDN is Tingkat Komponen Dalam Negeri (local content). It means the portion of cost ‘carried out in Indonesia’ in making a product, for example, the assembling of a car. If the assembling, coating, making and fixing the seats and manufacturing and installing the windows and windshields of cars are carried out in Indonesia, this is the TKDN.

Usually it is stated in percentage thus formulated:
% of TKDN = (total cost of local content/amount of total cost) x 100%.
Previously, calculating the TKDN was based on the selling price of product (price based), now it is based on cost of goods.

Based on reports the movement of TKDN percentage on the procurement of goods and services for the upstream oil & gas sector is rising year by year. This is based on the value of procurement in all contractors either those in production or exploration status.

What about the manufacturing of goods such as green pipes, seamless pipes, round bar (stud bolt) and steel plate whose raw materials are not able to be produced by domestic industries?

Calculation of the TKDN percentage is just the same as the above formula. For seamless line pipe, since there is no factory at all in Indonesia (even for finishing), the TKDN is zero percent.

For seamless casing & tubing the green pipe is imported. As for heat treatment works and threading, they could be done in Indonesia. So, heat treatment and threading may be calculated as cost of local content in calculating TKDN.

Is there any ‘trick’ as to the data of the oil & gas industry in using local content?

From my experience working for the upstream oil & gas industry, the contractors obtain TKDN data as is and is in accordance with that offered by vendor. But in the early process of procurement, for instance at the prequalification stage, contractors submit their requirements in advance regarding the minimum TKDN that may participate in a tender.

Audit is made periodically on contractors in relation to the reached TKDN commitment in the process of procuring goods and services. Usually during discussions on work program & budget (WP&B) the WP&B team asks simultaneously fixes the committed TKDN that must be reached by the contractors in procuring goods and services.

Meanwhile, from the vendor’s side, since TKDN is calculated by self assessment, it’s true that there are indications that the percentage of TKDN tends to be blown up. Because the bigger the TKDN the bigger the coefficient of preference acquired and thereby will affect the price of final evaluation after being normalized against TKDN.

Today, however, for TKDN whose value is 25 percent and over (for goods) a certificate from a related agency is required.

Is the existing regulation sufficient for ‘spurring’ the oil & gas industry to use local content in accordance with the government’s target?

In my opinion, the existing regulation is quite sufficient in protecting domestic industries. For instance, Law No.22/2001 Article 11, PP No.35/2004 Article 79, Regulation of the Minster of Industry No. 49/M-IND/PER/5/2009 and No.102/M-IND/PER/10/2009. Even the Directorate General of Oil & Gas issues and revises the Book of Appreciation of Domestic Product (ADP). For the process of procurement in contractors in particular, BPMIGAS regulates it under the 1st revision of PTK 007/2009.

My conclusion is that, the existing regulation is adequate for upstream oil & gas industrial players (in this case contractors) to fulfill their obligation to prioritize the use of domestic product. Now it’s up to the government to carry out their function of supervision and control.

Furthermore, the regulation connected with the policy to enhance the use of domestic product is already optimal. Nevertheless there is something that needs to be ‘revolutionized’, namely the system of industry.

How far have the related ministries and agencies been playing the role in spurring the use of local content in the oil & gas industry?

The role of related ministries such as the Ministry of Industry, the Ministry of EMR, The Ministry of Finance, the Ministry of Transportation and the Ministry of Trade have been very adequate in the framework of spurring the use of domestic product in the upstream oil & gas industry. The regulations is-sued have shown partiality to domestic industry.

BPMIGAS has also been very consistent in conducting various policies related to enhancing the use of domes-tic product. The 1st Revision of PTK 007/2009 was made by referring to various regulations and legislative rules issued by various agencies and regulator. BPMIGAS has also carried out various breakthroughs in the form of strategic partnerships with various ministries, state-owned enterprises, and state-owned and region-owned banks for promoting the enhancement of empowerment of national capacity.

Based on data of the Ministry of EMR, at the moment TKDN is already in the range of 50 percent. Subsequently, the government targets TKDN in 2025 of 91 percent. Once the target has been achieved, what next?

If TKDN has reached the target as launched by the government, of course the national industry supporter of national oil & gas is expected to be self-reliant, has sustainability and is capable of competing in regional as well as international level.

More than merely TKDN, I hope the majority ownership of resources that activate national industry (financial, capital, human resources, science and technology) are also in the hands of the Indonesian people. Thus they need not depend on their parent company abroad, so that in the future Indonesians are ca pable of producing products ‘made by Indonesia’, not just ‘made in Indonesia’.

Do you think domestic supporting industries are ready to reach the target figure mentioned above?

This is a challenge for all of us to face. Particularly the industrial players themselves, besides of course government agencies, contractors and support from other industrial stakeholders. Industrial players should sincerely place science and technology and ‘industrialization of intelligence’ as very urgent matters to enhance competitive advantage.

So far, many circles judge that national industrial players are more conspicuous of their mercantile nuances rather than ‘the real industrialist’. Consequently there are industries that only own production facilities in the downstream side, but less effort in developing toward possessing the upstream production facilities. Whereas, moving to upstream production process is one of the most determining requirements in enhancing TKDN.

Will Indonesia’s oil & gas business improve?

It depends on good will, spirit and synergy among stakeholders. Amid the strong current of globalization and pressure from the free market, Indonesians should enhance their competitive power so that they could compete either in the regional or international level.

It is time for us not to be trapped in thinking in sector only, i.e. just thinking about agencies, associations, or the company where we work. We also should try to think of Indonesia Incorporated to jointly and in synergy face the various challenges of the nation in future.

Will Indonesia be able to be self-reliant in managing oil & gas?

This is what we are hoping for. But this all depends on good will and synergy of stakeholders. ‘Self-reliant’ in this case means we possess ‘sovereignty’ in managing oil & gas industrial cluster.

It’s true, in this globalization era we cannot release ourselves from foreign parties. But, relations or cooperation with foreign parties should be based on the spirit of partnership, fair and partial to the interest of the nation.

The ultimate goal expected from managing upstream oil & gas business undertaking is so that one day we will be able to be self-reliant in the cluster of oil & gas industry. Thereby we could contribute maximally for the welfare of the nation simultaneously making the cluster of oil & gas industry as the locomotive in the development of national economy.