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Down to Earth No. 56, February 2003

Sulawesi targeted for exploitation

With major new oil and gas developments planned for Sulawesi, there is growing concern about the likely impacts on local livelihoods, forests, rare wildlife and the fragile marine ecosystem.

Central Sulawesi is being billed as Indonesia's next big gas producer by Indonesian companies with exploration projects in the province. Indonesia's state-owned oil and gas company, Pertamina, and Exspan Tomori Sulawesi - a subsidiary of Medco (see box) - say the province has huge potential for natural gas exploitation. General affairs manager of the company's joint co-operation body, Tri Siswindono, said Central Sulawesi could easily become Indonesia's biggest natural gas producer. With 20-28 trillion cubic feet (tcf), the Donggi and Senoro fields hold up to twice as much gas as Aceh's Arun field, operated by ExxonMobil, which has around 14 tcf left. The combined Sulawesi fields had almost three times as much as Papua's Tangguh project, he said.

The joint operators are planning to build a liquefied natural gas (LNG) plant to process the gas, to start production in 2007 at the latest, according to Pertamina director Baihaki Hakim. He says the markets are there - Marathon wants to buy 6 million tonnes of LNG per year and the Philippines and Japan have also declared an interest in buying Donggi LNG. According to Pertamina, the project will mean building a new town at Donggi with potential for thousands of jobs. (Note: the area is close to Morowali nature reserve, home of the Tau'taa/Wana indigenous people see DTE 32:8).

The project is being promoted by Pertamina as a matter of national pride because it will be the first in which the company will carry through a "mega-project" independently, rather than as partners with foreign operating companies.

The environmental group WALHI Central Sulawesi has appealed to environment minister Nabiel Makarim not to be in hurry to approve Exspan and Pertamina's oil and gas projects in the region, as the developments are likely to cause damage to the environment, harm livelihoods and prospects for tourism. In the Tiaka area, for example, which lies 11 nautical miles off the coast in Tolo Bay, oil exploration activities have already damaged coral reefs, according to the group.

A report by Indonesia's Tempo Magazine, described how oil and gas exploration, along with forest destruction, has contributed to the decline of the endangered maleo bird population on Banggai Island. A gas leak in 2001 killed maleos and others birds, whilst also causing islanders to suffer nausea and headaches. Tiaka Island, which was turned into a helipad and tanker terminal, was also home to 400 families of indigenous sea-faring Bajo people. 'A protest by the Bajos was answered by a terse "Stay or get out of the area".' Exspan also wants to convert Bangkiriang, a forest wildlife reserve, into an oil exploration and exploitation area, according to Tempo.

WALHI is also opposing the project's plans to build a 100 ha artificial island in Tolo Bay, by dredging 3 million tonnes of sand and gravel, to create space for storing oil drilling equipment. WALHI says the plan puts coral reef ecosystems covering almost 44 hectares under threat. A survey conducted by WALHI volunteers found that around 80% of the corals on the Tiaka Reef were in a good condition, and were inhabited by hundreds of species of fish and molluscs, including the Napoleon Wrasse (Cheilinus undulatus) and giant clams (Tridacna). The planned conversion of the reef into a storage island would also limit the access of local people to marine resources. WALHI says the environmental impact analysis (AMDAL) for the oil and gas development was carried out without the participation of local people who will suffer the direct impacts. The NGO is also warning that the dredging of riverbeds and land sites for excavating sand and gravel will bring the threat of floods and landslides to local villagers and their farmland*. WALHI says it is not opposed to the development, but insists that developers abide by environmental laws and protect the rights of local indigenous communities.

Central Sulawesi's provincial governor Prof Aminuddin Ponulele previously said he would issue a licence for Exspan and Pertamina to create the artificial island based on the recommendation of the provincial AMDAL commission. This stated that the area consisted only of sandbars and that the development would not threaten the surrounding marine life. The commission also said that its survey had found that the corals in the oil drilling area were mostly already dead. Exspan and Pertamina also reported that more than 80% of the corals were damaged.

The companies plan to start extracting oil from Tiaka in June 2003, with a production capacity of 6,500 barrels per day (bpd). US company United Texas Petroleum first discovered oil in Tiaka in the 1980s, but decided that the field's prospects were not good enough for further development. Pertamina and Exspan then took over exploration in the field.

According to Tempo, the Banggai district head gave his firm support for development: " Nothing should stand in the way of Exspan's plan to develop the natural resources of Banggai", he said. "This is a matter of prestige for Banggai."

*The kinds of problems that may arise are described in a new JATAM booklet on the impacts of conglomerate mining in Central Sulawesi. Mereka yang Dipinggirkan: Sengketa Tambang Galian C di Sulawesi Tengah, SPRA/JATAM/YPR, 2002 is available (in Bahasa Indonesia only) from

(Source: Pertamina website editorial, January 2003 - see; Media 13/Sep/02; Walhi kecam Keras Tindakan PT Exspan Menimbun Laut, posted on Walhinews 02/Sep/02; Asia Pulse/Antara 29/Aug/03; Tempo Magazine 8-14 Oct/02).

Oil and gas plans in Sulawesi

  • LNG plant, Central Sulawesi: Pertamina and PT Medco plan to build what will be Indonesia's 4th liquefied natural gas (LNG) plant in Donggi. They have signed an initial agreement with Marathon Oil Corp to ship the fuel to Mexico to be distributed to the US West Coast. (Bloomberg News 13/Dec/02)

  • Oil and gas fields in Central Sulawesi: in April 2002, Pertamina announced it had drilled in five fields in the Banggai basin, Central Sulawesi - Tiaka, Minahaki, Matindok, Senoro and Donggi. Four of the five have gas deposits and one has oil deposits. The company also announced that it would start drilling in four other wells during 2002 and ten more in 2003 (, 15/04/2002). The offshore Tiaka oil field is scheduled to start production in June 2003 at 6,500 bpd. Reserves reach between 11 and 33 million barrels of oil and exploitation is expected to last around 27 years (Asia Pulse/Antara 27/Aug/02)

  • The Donggi and Senoro gas fields in Toili, Central Sulawesi, will supply the new LNG plant. Production will start in 2007 at the latest (Media 13/Sep/02). In August 2002, a Pertamina/Exspan manager announced the combined preliminary estimate of gas reserves in the two fields as 20-28 tcf. Pertamina reported in January 2003 that 10 tcf had been confirmed in the Donggi field by the end of 2002. (Asia Pulse/Antara 29/Aug/02; Pertamina website editorial Jan/03)

  • Exploration in North Sulawesi: PT Intan Duanapaken announced it would start North Sulawesi's first ever exploration for oil and gas in waters around the Manado to Bolaang Mongondow districts. (Antara 3/Oct/02)

Exspan and Medco

PT Medco Energi International, which owns PT Exspan, is Indonesia's biggest listed energy company. The company started exporting oil in 2000 and by 2001 operated 8 exploration and production working areas. It also holds 2 contracts in Burma.

Owned by the ruling party PDI-P parliamentary faction leader Arifin Panigoro, Medco was involved in a debt/corruption scandal in 2001 when the company was US$75 million in debt to Bahana Pembinaan Usaha Indonesia, a state financial body. Panigoro is also a member of the energy commission in Indonesia's national parliament (DPR). He was named as a corruption suspect for investigation by the Attorney General during the presidency of Abdurrahman Wahid in 2001 and is known to have strongly supported the former president's impeachment.

In November 1999, the company concluded a debt restructuring agreement and converted 40% of its debt to equity - New Links, a joint venture between the Panigoro family and Credit Suisse First Boston, bought 87% of Medco. Thailand's PTT Exploration and Production PCL bought shares in New Links and now owns 34% of Medco.

(Source: Petroleum Report Indonesia 2001, American Embassy Jakarta, Tempo 28/Jun/01 and others)

Medco buys West Papua oil projects

In November 2002, Medco bought a 90% share in a 9,500 sq. km exploration block in Yapen, West Papua. Gas reserves are to be developed under a "frontier" production sharing contract, which extends more favourable terms to investors than ordinary contracts.

The company also has shares in oil and gas fields in Sumatra and in December announced it would build a US$19 million LPG (liquid petroleum gas) plant in Kaji Semoga, to start production in 2004. (Asia Pulse/Antara 7/Nov/02, Bloomberg News 16/Dec/02)

New oil and gas investment stalled

Pertamina's talk of great opportunities in Sulawesi masks a downturn in international enthusiasm over oil and gas exploitation in Indonesia. The global economic downturn and concerns over security are partly responsible, but the government's decentralisation programme has also put investors off. Last year the Jakarta government revoked 68 regulations issued by local governments in the energy and minerals sector which it said was in conflict with central government legislation and contracts. Most of the regulations covered taxes imposed by regional governments on companies operating in their areas.

In addition, uncertainties over how the 2001 oil and gas law will affect the sector have affected the rate of take-up for new oil and gas projects in the country. Law 22/2001, passed in November 2001, ends Pertamina's monopoly on the oil and gas industry and paves the way for deregulation in the downstream industries from 2005, when private companies will be able to build refineries and sell fuel products. The new agency set up to oversee production sharing contracts, BALAK, took over from Pertamina in August 2002. Regional governments are hoping that BALAK will bring more transparency in sharing out the revenues from oil and gas exploitation between central government, and the producer provinces and districts. However, Pertamina appears reluctant to drop all its privileges and has requested that it remains the sole seller of LNG to export markets.

At the beginning of 2002, 17 oil areas were tendered by the Indonesian government, but only one new agreement and one extension contract had been signed by the end of the year. In 2001, 21 exploration blocks were auctioned, but only eight contracts were signed. In 1997, by contrast, 28 contracts were signed. This year Indonesia is offering eleven new oil and gas concessions and promising more attractive terms. The new areas are in Jambi, South Sumatra, and off the coasts of Central Java, East Java, Bali and Tarakan in East Kalimantan.

The lack of interest among investors is bad news for Indonesia's cash-strapped government and its programme to boost revenues from natural resource extraction projects as a means of servicing its massive debts. But it does mean a breathing space for communities living in or near future exploration areas - time that needs to be used to build up local government accountability and strengthening the rights of communities to play a decisive role in projects planned for their areas.

ExxonMobil in Aceh

In Aceh, where security concerns forced ExxonMobil's gas operations to close down for several months in 2001, a peace agreement between the Indonesian government and the Free Aceh Movement (GAM), has been given a cautious welcome. Industry analysts expect it to improve the investment climate both in Aceh and in Indonesia as a whole. The deal, signed in December, has thus far provided a welcome break for ordinary Acehnese from the daily round of killings and acts of terror during the conflict. But there could be problems ahead if the two sides put too different an interpretation on the loosely termed agreement, which includes the difficult question of 'decommissioning' or storage of GAM arms and the 'relocation' (not withdrawal) of Indonesian troops.

As the two-month period of monitoring actions by the two sides was drawing to a close, a growing number of violations of the 'cessation of hostilities' accord were being recorded by the Joint Security Committee, putting the future of the agreement in doubt.

For Acehnese living near the ExxonMobil operations in North Aceh, the deal will hopefully reduce the numbers of Indonesian troops stationed to guard the site, although post-Bali fears of terrorist attacks may well persuade ExxonMobil and Jakarta that current numbers should be maintained. This is the security force that stands accused of subjecting local people to torture, killings and disappearances, prompting a lawsuit against ExxonMobil in the US (see DTE 53/54).

The accord may also mean that local villagers have more of a chance of bringing long-standing complaints over land-grabbing and pollution to public attention - or at least as much of a chance as communities in other parts of the country. In November, the head of Aceh's environmental protection agency, Bapedalda, said his office had received pollution reports from local residents, but had not been able to investigate due to the security situation. People living in Lhoksukon and Pasai subdistricts had complained of itchy skin, dying trees and hazardous waste polluting their river. Previously, ExxonMobil denied that its waste was polluting the local environment, stating that the waste was shipped by a contractor for treatment in Bogor.

(Bernama 11/Dec/02; Tapol Bulletin, February 2003; Reuters 22/Sep/02; 21/Oct/02; Jakarta Post 6/Aug/02, 3/Oct/02, 20/Nov/02, 28/Jan/03 & 3/Feb/03).

How much oil and gas?

Indonesia was ranked 17th among world oil producers in 2000 with around 1.9% of global production. Oil production in 2001 amounted to 1.34 million barrels of oil per day, with exports going to Japan, South Korea, China, Australia, Singapore, USA and Thailand. Indonesia's biggest producer is Caltex which accounted for around 48% of production in 2001. Indonesia also imports crude oil from Saudi Arabia, Nigeria and other countries but remains a net oil exporter. Indonesia's oil reserves are estimated to be approximately 9.6 billion barrels.

Natural gas production in 2001 was 2.8 trillion cubic feet. Reserves were estimated by the Indonesian government at 170.3 tcf of which 94.7 tcf are proven. LNG exports account for around 55% of total production, with exports worth US$5.3 billion in 2001 going to Japan, Taiwan and South Korea. In 2001 Indonesia started piping gas to Singapore and last year piped exports started to Malaysia.

Overall, gas production in Indonesia is expected to increase, while oil production continues to decline and Indonesia becomes a net oil importer. As the oil reserves dwindle over the next decades, policy-makers are also looking to natural gas exports to make up for falling oil revenues. Last year oil and gas contributed 29% to national revenues.

(Source: Petroleum Report 2001, on; Jakarta Post 3/Feb/03)

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