As delivered - provisional transcript
Thank you, Mr Chairman. Honourables, Excellencies, distinguished participants. I am honoured to be here to share our views with you today. As you heard earlier, Mr Chairman noted that there is a moratorium for our high-ranking officials for travelling abroad. That will probably preclude someone such as me, as I work for an oil company. We are making some windfall profits so it is okay for me to travel abroad.
Having been instructed by the Office of the President, I am semi official, however, I would like to say from the outset that whatever I say here today is my responsibility alone, and by no means represents the view of my government or my company.
I was especially requested to talk about energy security issues in Asia, and then the implications on the case in Indonesia, in which we are having difficulties facing these high energy prices, as well as the high food prices, which is interlinked. Before I go into the discussions on Indonesia, I would like to say a few words about the energy security issues in the Asia Pacific. I would like to argue from the beginning the energy security in the Asia Pacific region means that it relates to oil security, which is about how we can secure oil suppliers continuously and in a sustainable manner.
We know that the oil price has been very high, and we do not know if it will continue to rise or if it will, at some point in time, decline. It is suffice to say that, at the moment, it will affect all the economies, whether they are economies that apply market-related policies or in countries that apply heavy intervention by the government, which includes Indonesia.
Why oil security? Simply because the Asia Pacific region is consuming approximately 24 million barrels a day of oil products, whereas indigenous oil production only amounts to 8.5 million barrels a day. The difference will have to come from somewhere. We know that the energy consumption is increasingly rapidly in this region, in comparison to the world’s average, and this will get worse. It is about securing for regions that are far from here, including the Middle East, and bringing it through sea lanes that will be more and more congested. It is also about building the infrastructure within the region so that we can produce the oil into petroleum products that are needed in the most efficient and sustainable manner.
I will now give you some statistics. The world’s energy consumption, since 1998, has been growing at 2.5% annually. In Asia, it is much more than that. Asia alone is at more than 5%. Developing Asia is in the range of 6%. China is at 8%. In this area of the world, we are consuming more than the world average, but this is only natural as the economic growth in this part of the region has been very robust. To give you some background: in 1998, China’s portion of total energy consumption in Asia was 38%. Currently, it is at about 47%. Of the total oil consumption growth, every year, you can guarantee that half of it will come from China. The incremental demand of oil in China every year already surpasses the total consumption of a country like the Philippines in a year. It will continue this year, especially with the knowledge that energy per capita consumption is still relatively low. For example, if you compare energy consumption per capita in China with the more affluent countries, such as South Korea, it is still one fifth. Compared to the US, it is one tenth. Expecting China and other developing countries in Asia to reduce their consumption is impossible. These countries aspire to reach the level of other developed nations.
What can we do to address this? I would argue that the country on its own – whether it is a developing country or another country – will have the right policy at home. This includes Indonesia where subsidies heavily tax the economy. I would also argue that cooperation among regions will have to continue. If we talk about energy security, it is not only on the demand side, but on the supply side. The suppliers and producers of energy will also need a security on the demand side to ensure that the flow of production and income will continue to be there.
I would now like to talk about the case of Indonesia and the high oil prices. Our country has been subsidising. At least for the projection of 2008, even after the raising of the fuel prices, it will spend between $15 20 billion in this year alone. This is money that will be spent to subsidise. It is not productive at all.
It is to do with the government policy and the current political issues. Next year, Indonesia will undergo a parliamentary election for representatives and for the presidential election. The policies that the government makes, and the reaction to this, cannot be isolated on the case of energy policy alone. I always argue that, in my country, the constitution says that all the resources within the ground of Indonesia will have to be exploited and used for the biggest benefit of the people. Unfortunately this brings in two separate views. Firstly, the energy resources coming from our soil will have to be given to our people as cheaply as possible. I subscribe to the second view, however: that it has to represent the true value. If you have land that is in an affluent area, you do not want to sell it to the price of the outskirt areas because it is not going to be the true value.
In Indonesia there is a detachment between the people and the belonging of the resources. If this is being managed by the government, there is no trust in the government saying that it is for the benefit of the people. I am not a politician, nor am I a foreign service representative, so pardon me if I do not say things diplomatically. I will say what I feel is right. I believe that the key to addressing this is in the affordability of the people in getting these particular resources and oil products. The people think that if they do not get this cheap, the government is not doing its job. We know, however, that it is to do with power and buying power. The key to the policy is whether to make oil cheap or to bring up the power purchasing to the people so that they can afford the fuel.
The government is trying to address this. They would like to make the money directly to the poor to increase their ability to purchase the fuel instead of making the oil price very low. If the price is low, the target of the subsidy is enjoyed mostly by those who ‘have’ instead of the poor people. By addressing that, it should be the poor people who have accessibility and affordability of the resources. They therefore have to have the money to buy the fuel.
As I mentioned, there is a coming election. There is always effort to undermine government policy. Opponents are saying that the government is not keeping their promise of not raising the prices; the government is not empowering the people, but simply giving money instead of job opportunities, and so on. It is difficult for the government to do things simply because there is always a trade-off. It is a dilemma.
On the one hand, the government has been spending all this unproductive money for the subsidy instead of being able to pay for health services, education, research and development, or to make sure that alternative energy resources could be economically development. In this case, the government cannot really look at it from the point of view of sustainability. This coming election will see the current president as an incumbent. Doing something that is unpopular will help this government’s chances of being re elected. To do the right thing would mean that things would be better in the future, but it would be at the expense of being not re-elected. This is the difficulty we are facing.
In the meantime, when people are not able to get what they need, we have long queues; we have brownouts with the electricity company. Only a few days ago, the state electricity and my company were ‘blaming each other’ about what was happening with the situation. The government will have to make some bold efforts to rectify this problem or this will continue, and perhaps get worse due to the distortion in the market. When you continue subsidising oil, there will be some distortion. Demand will continue to be high and there will be misuse and malfunction, including smuggling oil out of the country. This will defeat the purpose of us being able to secure energy supply for domestic purposes. This also does not empower the state-owned enterprise, which are entrusted, on behalf of the government, to supply energy to the consumers. When, for example, state electricity cannot sell the tariff and it is below the electricity generation costs, how can you expect the state electricity to survive in the long term without receiving subsidies from the government? All these difficulties are happening in Indonesia.
My company is one of the beneficiaries, as far as the oil price is concerned, simply because we are producing oil. However, we also know that the easy and cheap oil is no longer here. If you need an increase in production, you will go into deeper seas, with difficult conditions and high contaminants, and so on, so that the cost of production will increase rapidly. For that, these oil companies will also need some capital. We are currently forced to give most of our dividends to the government to pay for the subsidies, instead of reinvesting to get more oil, for example. If we continue this trend, it will be unsustainable. It is something that is difficult for the country to face.
In closing, I would like to say that the oil security issues are here. It is not only the countries that face difficulties, but when you talk about people not being able to purchase what they need or not being able to cook, it is the energy security we are facing. The government needs to make a bold decision and a bold policy to address this issue. Cooperating with other countries to secure energy is important. Ensuring that the global environment is conducive for investment is important. Access to supply and ensuring that demand is maintained are also important. Hopefully this will be a learning process for many countries, especially for my government and my people. Hopefully we can get out of this particular crisis. Thank you very much for your attention.
