Papua Press Agency

The Jakarta Globe
Tuesday, December 9, 2008

Ismira Lutfia

Papuans comprise more than 30 percent of the workers already hired for the operational stage of the Tangguh liquefied natural gas project at Bintuni Bay, West Papua, a member of the project’s advisory board told a Jakarta media briefing on Monday.

Lord Hannay of Chiswick, Britain, said that the locally recruited workers for the operational stage would eventually comprise about half of the expected 1,500 workers, including the
employees from local subcontractors.

“By the year 2020, 85 percent of the workforce will be Papuans,” Hannay said, adding that it was feasible that by that stage many of the early recruits would have progressed to being skilled workers.

“One has a managerial-level position already,” Hannay said.

The Indonesian government appointed BP Indonesia as the operator of the Tangguh LNG project in 2005 with a 37.2 percent stake under a production-sharing contract with BPMigas.

BP says the project will extract about 14.4 trillion cubic feet of gas from six fields, which will be processed into some 7.6 million metric tons of LNG annually.

BP established the Tangguh Independent Advisory Panel, or TIAP, in 2002 to conduct reviews on the project’s noncommercial aspects.

Its members are Hannay, former Indonesian ambassador to Australia and journalist Sabam Siagian, the Rev. Herman Saud from Jayapura, Papua, and former US Senator George Mitchell as the chairman.

The panel has visited the project and surroundings areas to assess its effects on local communities and the environment.

The panel told Monday’s briefing that during its most recent and final visit to the project, if found that the current construction phase — employing 10,000 people — was expected to
be completed soon and that next year would mark the beginning of an expected 30 to 40 years of gas production.

The construction workforce was now being wound down to about 4,000, and all the builders would have left by the time the project commenced operations.

“The non-Papuan workers are being demobilized at a quicker rate than the locals,” panel chairman Mitchell said.

He said that the panel had repeatedly stressed to BP that it had to prioritize the employment of Papuan workers during both the construction and operational stages.

On possible disparities between the number of local and non-local workers, Saud said that as long as the migrants respected the habits and customs of local people, there would be
no problem.

“That’s why the panel recommended to BP that it employ as many local people as possible so that they won’t be envious of the newcomers,” Saud said.

Saud also said that the panel had urged the people and local administration in the Bintuni Bay area to benefit as much as possible from BP’s presence.

“We, all Papuans, we don’t want what happened with Freeport to occur again in the Bintuni Bay area,” he said, referring to US-based mining giant PT Freeport Indonesia, which has been
subjected to sustained attacks over the treatment of indigenous people by its operation in Papua.

Mitchell said that migration and changing residential patterns were not unique to Indonesia, and had often produced major social and political tensions even in such countries as the US
and Britain.

He added that the district head of Bintuni Bay, Alfons Manibui, has made it clear that he has been working with village chiefs to develop the most sensible long-term policy to deal with the problem.

“There are tensions and disagreements but, over time, people will become part of the society and there can be social harmony,” Mitchell said.

The panel said it had witnessed a considerable change in Bintuni Bay and believed the project would benefit both regional and national development, as long as the developers continued to take into account local customs and culture.

Hannay acknowledged that NGOs had expressed deep suspicions that the project would violate the human rights of natives, but said, “The panel has taken [into account] issues that the NGOs care about.”

Tempo Magazine No. 03/IX 16-22 September, 2008

Tomy Winata was reportedly involved in opening the door for lobbying in China. However, President Yudhoyono and Vice President Jusuf Kalla apparently have different attitudes over the handling of the Tangguh contract.

THE defenses of Sri Mulyani Indrawati are far too strong to be pierced by news reporters. Bombarded by questions about the names of those put forward as possible members of the Tangguh gas contract renegotiation team, the Coordinating Minister for the Economy has been extremely thrifty with her words. She only smiled when asked if the name of Minister of Energy & Mineral Resources Purnomo Yusgiantoro was on the list of possible members of this team.

This will be determined later by the President,” said Sri Mulyani after a closed meeting at the President’s office on Tuesday last week. President Yudhoyono, according to her, will provide direction regarding the renegotiations to be carried out once the members of the team have been decided. “So, let’s just wait,” she said.

The spotlight now is certainly on the sale of gas from Bintuni Bay, Papua, to the Province of Fujian, China. The trigger for this was the visit by Vice President Jusuf Kalla to Beijing last month. After attending the closing ceremony of the Beijing Olympiad, Kalla met with Chinese President Hu Jintao and Vice President Xi Jinping. At this meeting, he requested that the gas sales contract, signed six years ago, be reviewed because the price was far too low.

The current price of gas from Tangguh is US$3.35 per million cubic feet (million British thermal units or mmBtu)—this is above the limitation on the price of oil revised two years ago to US$38 per barrel. When this contract was signed originally, the gas sales price was set at US$2.4 per million cubic feet for a period of 25 years, with a limitation on the price of oil at US$25 per barrel.

This limitation is the reason why the price of gas from Tangguh cannot be raised any higher even though the price of oil has risen above US$100 per barrel—at this level the price of gas should already be around US$20 per million cubic feet. “I am sorry to say that this formula is the worst, the most serious in the history of the oil and gas business,” said Kalla at that time. If the contract is not renegotiated, Kalla estimates that Indonesia will lose US$75 billion.

This planned renegotiation has been the subject of much gossip. In a cabinet plenary meeting three weeks ago, President Yudhoyono eventually appointed Sri Mulyani to lead the Tangguh gas sales contract renegotiation team. Minister Sri was also asked to put forward the names of possible members of the negotiation team. With the proviso, “Don’t allow there to be any conflicts of interest,” said Yudhoyono at that time.

So, based on this, Sri Mulyani has already put forward several names to the Palace. And, according to a Tempo source, Purnomo Yusgiantoro is one of those whose names have been put forward. In addition to Purnomo, it is said that the names of R. Priyono, Chair of the Oil & Gas Upstream Executing Body (BP Migas), as well as Evita Herawati Legowo, Director-General for Oil & Gas at the Department of Energy & Mineral Resources, are on this list of names.

The inclusion of Purnomo’s name has triggered much debate. According to the earlier source, Vice President Jusuf Kalla does not agree with Purnomo being in the team. However, Purnomo’s
chances are quite strong. “The President insists that Purnomo still be included, even though currently there is a lot of discussion about him being included,” said this source.

This is not the first time there have been differences between Kalla and Yudhoyono over the handling of the Tangguh situation. The previous source went on to say that President Yudhoyono felt it was improper for Kalla to involve people outside the “official channels” for lobbying the Government of China.

The person that this source is referring to is Tomy Winata. According to the source, this boss of Artha Graha has assisted the Government of Indonesia in opening the door for lobbying to China. It is certainly common knowledge that Tomy has a great many connections with businesspeople and senior officials in that country. Tomy won the project to develop the Chinese industrial estate in Karawang, West Java. The contract for this project was signed at the China World Hotel in Beijing, three years ago.

After hearing about the approaches outside official channels, during a cabinet meeting three weeks ago President Yudhoyono warned repeatedly that the members of the team chosen had to be credible and have legitimate authority. “Do not include members who do not have the authority for government duties,” he said.

Presidential spokesperson Andi Mallarangeng has stated that with the setting-up of this official team, the existence of any informal team was not permitted. Andi refused to explain who the
members of any such informal teams were. He also rejected that there was any “competition” between Yudhoyono and Kalla. “They both want exactly the same: that the sales price of gas from Tangguh be raised,” he said.

There were also protests from Tomy Winata. Apparently, he does not know anything about this gas project that has swallowed up investment costs of US$10.6 billion. “I have no dealings with gas. I have only just now heard about,” he said. He denied having been asked to assist in lobbying China. “I am now only involved in agriculture, rice and fisheries,” he said.

Unlike before, this time around Jusuf Kalla is not saying much about gas from Tangguh. At a press conference in the Vice President’s Office on Friday last week, Kalla parried reports that he would object if Purnomo were in the team led by Sri Mulyani.

* * *

THIS gas sales contract began six years ago. The Tangguh gas field, which has reserves of 14.4 trillion cubic feet, originally took part in the sales tender to the Province of Guangdong, China. At that time, Indonesia was hoping that gas from the Wiriagar, Berau and Muturi blocks would win the tender. This was understandable bearing in mind that although it had been offered to the market since the 1980s, there had been no demand for the Tangguh field.

“Domestic offers weren’t wanted and offers to banks didn’t work either,” said Trijana Kartoatmodjo, a former Deputy Chair of BP Migas. In fact, long before taking part in the tender to Guangdong, the government of Gus Dur had already offered gas from Tangguh to China. Yudhoyono, who at that time was Minister of Mining & Energy, also went on trips to China. Unlike its name (“Tangguh” means tough in Indonesian), gas from Tangguh was unlucky. This field always lost when it took part in tenders. One of these included losing out to Qatar in a tender to Taiwan.

Because of this, there was a real desire to win in Guangdong. President Megawati Soekarnoputri sent a letter to the Chinese Prime Minister Zhu Rongji several days before the tender was announced, requesting that China choose Indonesia. “But Zhu answered that the government was not able to take any advantage because it was an international tender,” said a Tempo source. Even President Megawati’s personal lobbying through a six-minute dance with Jiang Zemin, President of China at that time, was not capable of stopping Australia from becoming the winner.

However, China was generous. In order to safeguard relations, Indonesia was offered to supply gas to Fujian without having to go through a tender. In fact, between 2000 and 2002, due to the
large amount of new producers, selling gas was by no means easy. The market conditions were most advantageous for buyers. This was different to between 1970 and 1980. “At that time, people selling gas were warmly welcomed, and the red carpet was rolled out,” said Trijana.

Knowing that it was very much in control of the situation, China set conditions. The country wanted to buy as long as the price was the same as the price offered to Guangdong. “If you want to sell, then that’s the price. If not, then there was no deal,” said Trijana, who was directly quoting one of the Chinese delegation members. The gas price formula set by China had a limitation based on the price of oil being set at US$25 per barrel. At that time, the price of oil was between US$16 and US$18 per barrel.

The offer was difficult to turn down, bearing in mind the difficulties involved in selling Tangguh. So, representatives of BP Indonesia, Pertamina and BP Migas set off for China. At that
time, Trijana was one of the BP Migas representatives on this trip. There was a meeting at the headquarters of the China National Offshore Oil Corporation (CNOOC), which started on August 19, 2002.

At their headquarters located in Dongcheng District, Beijing, the bosses of this state-owned oil company received the Indonesian team. Present were Wei Liucheng, Chairman of CNOOC at that time, and Chinese Vice President Xi Jinping, who at time was still the Governor of Fujian. From BP came Anne Quinn, Vice President of BP’s Gas, Power & Renewables. This meeting lasted almost 10 days with conversations taking place in two languages, English and Mandarin. One day could be 10 hours long.

Trijana requested that the sales price be increased to above that of the Guangdong offer. “This was not a negotiation, but rather a request for help,” he said. The final sales value was 9 cents higher than the original offer. The sales price was set at US$2.4 for a period of 25 years with 2.6 million tons of gas to be supplied every year. This sales-purchase agreement was signed in Bali in September 2002.

Indonesia then took part in a tender in South Korea, beating Petronas from Malaysia. Tangguh became the supplier for K-Power and Posco, with 600,000 and 550,000 tons per year respectively. The prices were US$3.5 and US$3.36, and the sales contract was for a period of 20 years. The price formula for this according to head of the BP Migas Marketing Division, Fathur Rahman, referred to Fujian. In the same year, this gas was also sold to the West Coast of America. This sales contract to Sempra Energy was set at US$5.94 per million cubic feet for a period of 20 years.

The BP Migas technical team then explored negotiating the price at the end of 2005 when the price of oil reached US$60 per barrel. The result of this was that the oil price limitation was raised to US$38 per barrel in May 2006. This was after a lot of tough talking. “Previously, China was sticking at US$34 per barrel,” said a Tempo source.

However, the price of oil moved like a wild ball. It was because of this that the BP Migas technical team then explored renegotiating the price in mid-2007. “We knocked on the doors of China and South Korea,” said Djoko Harsono, Deputy for Financial, Economic and Marketing Affairs at BP Migas. While the opportunity for renegotiating in China was dependant on the results of Fujian. “If the price in the Fujian sales contract goes up, then the prices to Posco and K-Power will also go up,” said Fathur Rahman.

This is possible and because of this, President Yudhoyono asked former Foreign Minister Ali Alatas to become adviser to the team. In May this year, Ali together with Kardaya Warnika, a former head of BP Migas, went to Fuzhou, the capital city of the Province of Fujian. Accompanied by Sudrajat, the Indonesian Ambassador to China, they met with Fujian Deputy Governor Li Chuan and several executives from CNOOC. “We held preliminary discussions,” said Ali Alatas.

Indonesia’s desire to match the limitation to the price of oil, said Sudrajat, can be understood by China. “However, at the technical level, they are not yet able to make a decision,” he said. Fujian and CNOOC leaders need a political decision from Beijing. It was because of this that when he met with Xi Jinping in Beijing, Kalla once again conveyed Indonesia’s desire.

– Yandhrie Arvian, Amandra Mustika Megarani and Kurniasih Budi

The Jakarta Post , Jakarta | Mon, 08/25/2008 11:19 AM | Headlines

Vice President Jusuf Kalla’s weekend trip to Beijing has led to promises to renegotiate a controversial 2002 deal to export LNG to China at a price far below market value.

After a Sunday meeting with Chinese Vice President Xi Jinping, Kalla said the two had agreed to renegotiate a 2002 contract to supply liquefied natural gas (LNG) from Indonesia’s Tangguh field in Papua to Fujian province.

“In principle they have understood and received (our proposal for renegotiation) well. The two countries will set up a team to further discuss the issue,” said Kalla after meeting Xi as reported by Antara.

“If we compare the LNG Tangguh contract signed in 2002 with today’s (prices), the (contract) price is far lower. That’s why we want to talk about the contract again,”
he said.

Kalla believed the 25-year contract for LNG export to China, made during the administration of president Megawati Soekarnoputri, would lead Indonesia to high losses once the export begins next year.

Under the contract, according to Kalla, the price of LNG had been pegged at US$2.40 per million British thermal units (mmbtu) regardless of any increase in crude oil prices.

At present the international LNG price is around $20 per mmbtu.

The LNG price at the time of the contract’s signing was based on a crude oil price of $20 per barrel.

The Chinese government had earlier agreed to raise the price to $3.80 per mmbtu but the Indonesian government refused the offer, saying it was still too low.

Analysts have repeatedly criticized the contract, calling it foolhardy to assume the world oil price would remain at 2002 levels.

Kalla had demanded the House of Representatives investigate the inking of the contract for irregularities, calling it the country’s most bungled LNG contract ever.

“The House must investigate this (through the ongoing inquiry session). This is the most devastating contract ever made, and it is the worst,” said Kalla, who is also chairman of the Golkar Party, which has the majority of seats in the House.

Energy and Mineral Resources Minister Purnomo Yusgiantoro, who held the same post during the Megawati administration, played a key role in the 2002 negotiation with the Chinese government.

President Susilo Bambang Yudhoyono, who was the Energy and Mineral Resources Minister during then president Abdurrahman Wahid’s administration in 2000, was also actively involved in trying to sell the gas to China.

The operation of the Tangguh LNG plant is led by BP Plc, Europe’s largest oil and gas company, and will start supplying 2.6 million tons of LNG annually to China’s Fujian province.

Located in the Berau-Bintuni region, the Tangguh plant is expected to produce 7 million tons per annum in the first phase of production scheduled in 2009. Gas fields, which will feed the plant, have proven reserves of 14.4 trillion cubic feet.

Korea Gas Corp has recently agreed to buy Tangguh LNG at the record price of $20 per mmbtu.

Buyers of the LNG also include the United States company Sempra Energy LNG Corp, South Korea’s steelmaker POSCO and power firm K. Power.