Smart Technology Needs Smart Regulators
The title of this article piece caught my ear when I was watching a debate that was held at the recent Bali Fintech conference, where the President of Indonesia made an outstanding speech that was appreciated by many members attending, he made one reference to the popular series "The Game of Thrones" where he said "Several great houses, great families, battle each other fiercely to seize control over the ‘Iron Throne'
He also made the following statements:
"Preventive excessive government interference too early in the process of innovation".
"Give the innovative the confidence to experiment without having the fear of civil or criminal liability".
A recent article published in the Jakarta Post in reference to geothermal, where Pak Prijandaru Effendi the chairman of the Indonesian Geothermal Association (API) dismissed the government's claims of the geothermal success story, where he said that this has needed more than three decades to succeed.
In my opinion four very good statements, there is no doubt that regulations are holding back innovation and technology in many sectors of industry in the country including the exploration industry. There is no doubt that excessive government interference is holding back development and there is no doubt that the fear of being victimised because you have made a business decision which was not successful in terms of financial loss is helping to increase Indonesia's imports for oil and gas as well as delaying the geothermal development that Indonesia has so much potential for.
Geothermal development does take time, on average from the early exploration stage to production can take eight years or more, in some cases it has taken 15 years, therefore taking credit for geothermal that is coming online today has taken many years of development as well as huge amounts of money, (much of which has been lost by the investor), is not correct. There are worrying signs that the targets set by the government for renewable energy will not be met, it is understood that this has been verbally stated that instead of 2025 it will now be 2030.
It is fair to say that the government of Indonesia has not invested as it should have done in the natural resources that it has in its own backyard, the reliance of investors in the past is not what the future holds.
Many of the geothermal power plants that have been developed have been in areas that shall I dare say easier to develop than several of the options that are available today, geothermal is a complex and difficult resource to develop, hence the reason that so many coal-fired plants have been and still continue to be developed, the cost difference of a coal-fired plant compared to a geothermal plant is substantial. Geothermal Development costs US$8 million per 1 MW (in comparison to US$2 - 3 million for coal) or approximately US$400 million for a mid-sized 50 MW plant.
The four statements highlighted what is and is not happening in the geothermal, oil and gas industries, which is down to the people who are a part of the "Game of Thrones" in Indonesia. They are stopping what the President is saying should happen.
There is also another added problem, which is supported by a comment from Fintech, "Geopolitics is becoming more important than energy", it certainly appears that way with the run-up to the election next April.
I was in a recent meeting where I was told that the government's exploration budget for 2018 is 60 billion Rupiah (less for 2019), or US$4.1 million, this is a very small amount of money considering the cost of conventional exploration methods. We have heard so often that Indonesia needs to explore and it needs investment, but if you are only going to invest peanuts yourself, how will you attract other investors?
Another person told me that it appears that Indonesia has lost the appetite for exploration, if this is the case, why are they complaining about the cost of importing oil to meets its daily demand?
A recent regulation to lift the charges for oil and gas block data was made, this previously could cost up to US$80,000. The move is an attempt to attract more companies to bid in the upstream sector,
This is an interesting development, but will it really attract more interest? As far as I am aware, the data that is available is normally of a poor quality and any investor will be taking a very high risk in bidding for any block based on this data. It is considered that the cost of US$80, 000 is very small and that investors would be willing to pay far above this sum if there was reliable data available. "The bitterness of poor quality remains long after the sweetness of a low price is forgotten"
Personally, I am not seeing that the government is looking at the real problem that is not attracting investors, scrapping the charge for oil and gas data is scratching the surface of what needs to be done, what needs to be done is simple, exploration with technology that is supported by conventional exploration methods. Knowing the full potential of any area is important. Giant, mature oil fields all have potential, hidden geothermal reservoirs also have potential, we just need to know where they are and what they contain.
Why are they not developing areas that do contain large resources, such as one area in Lampung that contains one billion barrels of oil, or another area that is reported to have 40 billion barrels of oil? When a respected person mentioned these to me, I said, who is listening, he replied, “no one”. Business conducive regulations are needed, smart technology is needed, they both go hand in hand, this does not appear to be the case in Indonesia at this time.
Technology and financing are two different sides of the coin. Technology providers are NOT supposed to bring financing, the Indonesian government is expecting both.
This article was written by myself and was published in the Jakarta Post on Friday 16th of November 2018.
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