Recommended
More Related Content
What's hot
What's hot (8)
Similar to Downstream Energy Security (Indonesia) At NO COST to Government ( Jan 2017)
Similar to Downstream Energy Security (Indonesia) At NO COST to Government ( Jan 2017) (20)
Recently uploaded
Recently uploaded (20)
Downstream Energy Security (Indonesia) At NO COST to Government ( Jan 2017)
- 1. Realising Downstream Energy Security* ( at NO COST to Government ) through Regulatory Reforms and Competition 1Synergy Downstream Solutions * Oil Fuels, LPG, Biofuel and Crude Oil Presentation to Bapak Arcandra 12th January 2017 In the National Interest Presented by Bapak Susilo Siswoutomo and Jeff Wilson Synergy Downstream Solutions
- 2. 2Synergy Downstream Solutions Downstream Energy Security Through Regulatory Reform Project executed by Synergy Downstream Solutions in association and cooperation with : Championed by Ministry of Energy and Mineral Resources (ESDM) Supported by Downstream Oil and Gas Regulatory Agency (BPH MIGAS) Sponsored by National Energy Council (DEN) Financed by British Embassy Jakarta and Synergy Downstream Solutions ( NO Public or Private Sector Sponsorship or Financing ) Private Sector
- 3. 3Synergy Downstream Solutions Downstream Energy Security Through Regulatory Reform Project focuses exclusively on realizing Downstream Energy Security Solutions in the National interest at “NO COST to Government" Financed by British Embassy Jakarta and Synergy Downstream Solutions ( NO Public or Private Sector Sponsorship or Financing )
- 4. 4Synergy Downstream Solutions Downstream Energy Security Through Regulatory Reform Presentation Contents 1 Project Scope ( Years 2012 to 2016 ) 2 Energy Security Challenges, Consequences and Conclusions 3 Energy Security Smart Solutions at NO COST to GOI 4 Smart Solution Plan 1 : 30 days Mandatory Operational Reserves (“OPR”) at No Cost to GOI 5 Smart Solution Plan 2 : 30 days Forward Placed Reserves (“FPR”) at No Cost to GOI 6 Summary - OPR and FPR Addition Storage, Inventory and Costs 7 Smart Solution Plan 3 : Energy Security Through Level Playing Field Competition (“LPFC”) at No Cost to GOI 8 Regulatory Reforms in the National Energy Security Interest 9 Downstream Energy Security Oversight and Regulatory Compliance
- 5. 5Synergy Downstream Solutions Downstream Energy Security Through Regulatory Reform Presentation Backup Materials A Forward Placed Reserves - Key Operational Features B Forward Placed Reserves (“FPR”) Stakeholder Value Propositions C Implementation Plans and Realization of OPR, FPR, LPFC and DESA D Downstream Energy Security Priority Next Steps E Oil and Gas Law ( Downstream Requirements ) F Oil and Gas Law Proposals Undermining Downstream Energy Security
- 6. 6 In the National Interest Synergy Downstream Solutions Project Scope ( Years 2012 to 2016 ) 1
- 7. 7 Downstream Energy Security Through Regulatory Reform Project Scope ( Energy Security Supply Chain ) Imports Energy Buffer Reserves ( EBR ) Level Playing Field Competition ( LPFC ) Operational Reserves ( OPR ) Refining Synergy Downstream Solutions LPG Crude Oil Oil Fuels Household Retail Wholesale Refining & Domestic Crude LPG Oil Fuels Biofuel Regulatory Oversight and Enforcement
- 8. 8 Downstream Energy Security Through Regulatory Reform Project Scope ( Deliverables ) DEN / Synergy Downstream Solutions / Q Energy 2012 PROJECT No. 1 • SCOPE • Develop Private Sector Business Models for Energy Buffer Reserve (EBR) at NO COST to Government (“GOI”) • Assist DEN to draft EBR Regulations • Assist DEN to draft Emergency Response Regulations 2013 PROJECT No. 2 • SCOPE • Prepare “Energy Security Business Case” (ESBC) for regulatory reforms. • Identify / recommend regulatory reforms to realize ESBC at NO COST to GOI • Recommend measures to improve Biofuel implementation • Recommend improvements for Refinery Investment Business Case • Recommend improvements for “Oil to Gas” conversion project for transportation 2014 PROJECT No. 3 • SCOPE • Prepare Action and Implementation Plans (Plan’s) for: • 30 days Operational Reserves (OPR) • 30 days Forward Placement Reserves (FPR) • Level Playing Field Competition (LPFC) • Identify / justify cross ministry regulatory reforms for FPR, OPR, LPFC • Conduct National Infrastructure review / recommend FPR and OPR terminal locations 2015 - 2016 PROJECT No. 4 / 5 • SCOPE • Provide Implementation Assistance to Ministries for FPR, OPR, LPFC and regulatory reforms • Prepare Report, and Action and Implementation Plan to restructure BPH Migas for overseeing Energy Security • Conduct National Infrastructure review / recommend FPR and OPR terminal locations • LIVE Project Completed by Project / Deliverables endorsed by ESDM, DEN, BPH MIGAS and other Key Stakeholder. Insufficient data made available by ESDM / BPH MIGAS
- 9. 9 Energy Security Challenges, Consequences and Conclusions In the National Interest Synergy Downstream Solutions 2
- 10. 10 Downstream Energy Security Through Regulatory Reform Energy Security Challenges and Consequences Consecutive Governments (“GOI”) have failed to fully implement Article 7.2 and Article 62 of Law No. 22, year 2001 or finance downstream energy security adequately. Article 7.2 “Downstream Business Activities … shall be conducted through the mechanism of fair, healthy, and transparent business competition” Article 62 At the time this Law comes into effect Pertamina shall continue to perform its duty to supply and serve Petroleum Fuel for domestic requirements for a maximum period of 4 (four) years. “Business as Usual” has delivered major energy security shortfalls and risks, which if unresolved will inevitably : Further undermine the nation’s energy security Significantly impact the nation’s economy when a supply crisis occurs. NO Level Playing Field Synergy Downstream Solutions
- 11. 11 Downstream Energy Security Through Regulatory Reform Energy Security Challenges and Consequences Continued 1 Increasing Oil Fuels, Crude Oil and LPG demand supplied by imports 2 Declining domestic Crude Oil production 3 No Emergency Reserves of any kind (Oil Fuels, LPG, Crude Oil) 4 Declining Operational Reserves ( Oil Fuels, LPG, Crude Oil ) 5 Major infrastructure and logistics capacity shortfalls Demand growth to year 2025 could be 100% relative to 2015 By year 2025 forecast imports could account for : 80% of combined Oil Fuels + Crude Oil demand 70% of LPG demand. Increases are irrespective of planned new refineries and upgrades Operational Reserves (2014 / 15) Oil Fuels : 15 days Crude Oil : 14 days LPG : 10 days (2007 : 29 days) Total national reserves available to GOI under all circumstances ! Synergy Downstream Solutions
- 12. 12 Downstream Energy Security Through Regulatory Reform Energy Security Challenges and Consequences Continued 6 Pertamina has no explicit responsibility for energy security by Law but is a barrier to private sector investment in energy security. 7 Government budget constraints and competing priorities 8 Gross and prolonged downstream underinvestment by Pertamina 9 Misplaced nationalism belief that GOI and SOE’s are the only solution and GOI must finance and own rather than oversee and control. By year 2025 Indonesia must have increased total storage capacity and reserves relative to year 2015 by : Oil Fuels : 283% LPG : 408% Crude Oil : 130% Increases are irrespective of planned new refineries and upgrades. Demand, Storage, Reserves and Investment Requirements 2016 2025 Synergy Downstream Solutions
- 13. Energy Security Challenges and Consequences Continued 13 Downstream Energy Security Through Regulatory Reform (1) ESDM “Oil and Gas Statistics 2013” (2) Pertamina Annual Report 2014 – EXCLUDES product reserves costs (3) Pertamina presentation “Pertamina Highlights, 1st Half 2015”, 15th Oct ‘15 If NO Private Investment . . . Pertamina’s budget must increase 1,700% and be sustained at this level by GOI for at least 9 years! 2012 = US$ 0.65 bn (1) 2013 = US$ 0.59 bn (2) 2014 = US$ 0.50 bn (2) 2015 = US$ 0.53 bn (3) Inadequate and Declining Pertamina Downstream Capex ( Refining, Marketing and Trading 2012 to 2015 ) Synergy Downstream Solutions 10 MAJOR INVESTMENT required US$ 82 Billion Up to 2025 US$ 49 Billion To be incurred by 2020 US$ 9.1 Billion per year up to 2025
- 14. 14 Downstream Energy Security Through Regulatory Reform Energy Security Challenges and Consequences Continued 11 Inadequate regulatory oversight and compliance enforcement (SOE’s and private ) 12 A non-negotiable timeframe to finance and implement Smart Solutions to avoid a crisis! Synergy Downstream Solutions Incomplete, fragmented regulatory oversight and weak compliance creating “Energy Security Black Holes” that enable : Exploitation Energy stocks misuse Inadequate operational reserves Biofuels non-compliance Subsidy abuse Non-reporting Inadequate infrastructure investment Approx.110 Companies have active Oil Fuels Wholesale Business Permits requiring regulatory oversight !
- 15. 15 Downstream Energy Security Through Regulatory Reform Energy Security Conclusions and “Smart Solutions” Resolving increasing Energy Security shortfalls / risks are time constrained and cannot be delayed until GOI or Pertamina can finance ! To avoid crisis SMART SOLUTIONS at “NO COST to GOI” are essential US$82 Billion investment required to year 2025 ! DEMAND COMPETITION INVESTMENT STATUS QUO Business As Usual TIME CONSTRAINED CONSEQUENCE NO COST to GOI Synergy Downstream Solutions Regulatory Oversight Regulatory Reforms Private Sector Investment
- 16. Energy Security Smart Solutions at NO COST to GOI Synergy Downstream Solutions 16 In the National Interest 3
- 17. 17 Downstream Energy Security Through Regulatory Reform Energy Security at NO COST to GOI 1. Three (3) Implementation Plans (“Plans”) have been issued for implementation : Plan 1 : 30 days Mandatory Operational Reserves (“OPR”) Cost = US$12.2 Bn Plan 2 : 30 days Offshore Supply Agreements Forward Placed Reserves (“FPR”) Cost = US$ 13.25 Bn Plan 3 : Level Playing Field Competition (“LPFC”) includes refineries, transportation, pipelines etc. Cost US$ 56.0 Bn 2. Plan’s rectify / mitigate energy security shortfalls and risks at NO COST to GOI and can be implemented in any sequence PRIVATE Sector US$ Regulatory Reforms Market Competition LPFC Energy Security at NO COST to GOI OPR FPR Endorsed Pending Endorsed by ESDM Synergy Downstream Solutions
- 18. 18 Downstream Energy Security Through Regulatory Reform Energy Security at NO COST to GOI Energy Security Reserves comprise: 30 days Mandatory Operation Reserves ( OPR ) 30 days Offshore Supply Agreements Forward Placed Reserves ( FPR ) 30 days Energy Buffer Reserves ( EBR ) Costs for GOI when able to finance OPR and FPR are NO COST to GOI GOI shall have unrestricted access to all reserves in any emergency (OPR + FPR + EBR ) Important FPR are committed supply agreement volumes pre-shipped / stored in Indonesia in advance of delivery to Wholesalers as Operational Reserves Endorsed by ESDM Synergy Downstream Solutions OPR FPR EBR In compliance with Article 16, GOI Reg No. 79, year 2014 (National Energy Policy), OPR ( + FPR) are NOT financed by GOI
- 19. 19 Smart Solution : Plan 1 30 days Mandatory Operational Reserves (“OPR”) at No Cost to GOI In the National Interest Synergy Downstream Solutions 4
- 20. Plan 1 : 30 days Mandatory OPR Downstream Energy Security Through Regulatory Reform 20 Wholesalers Operational Reserves ( Oil Fuel, LPG, Crude Oil ) REFINING Suppliers & Traders Reserves ( Oil Fuel, LPG, Crude Oil ) LoC required > US$ 1 billion? REFINING Existing Reserves : 0 to 18 days NO COST to GOI Off Shore Indonesia Offshore Suppliers / Traders Wholesalers 1. 30 days mandatory OPR ( Oil Fuels ) to be implemented in phases commencing 2016 and completed by 2019 / 20 ( LPG and Crude pending ) 2. Mandatory OPR applies to ALL Wholesalers without exception 3. Best practice cross ministry regulatory reforms MUST be implemented to minimize additional costs incurred by Wholesalers in the national interest 4. Implementing LPFC in parallel will reduce Pertamina’s OPR cost burden and improve its competitiveness. Pending ESDM Endorsed by ESDM for Implementation Synergy Downstream Solutions Increase to Mandatory 30 days
- 21. Plan 1 : 30 days Mandatory OPR Downstream Energy Security Through Regulatory Reform 21 Endorsed by ESDM for Implementation Synergy Downstream Solutions Oil Fuels • Additional Storage : 8,200,000 KL • Storage Capacity increase : 147% • Product Inventory increase : 300% LPG • Additional Storage : 786,000 Tons • Storage Capacity increase : 218% • LPG inventory increase : 600% Crude Oil ( NO new Refineries ) • Additional Storage : 2,600,000 KL • Storage Capacity increase : 86% • Crude Inventory increase : 100% Critical Shortage Pending ESDM Pending ESDM KL KL Ton Data subject to year 2016 revalidation - Awaiting MIGAS data
- 22. Plan 1 : 30 days Mandatory OPR ( 2016 to 2025 ) Downstream Energy Security Through Regulatory Reform 22 Cost ? Who Pays ? ( NO COST to GOI ) Synergy Downstream Solutions Data subject to year 2016 revalidation If NO LEVEL PAYING FIELD reforms and year 2015 market shares remain unchanged : Cost for Pertamina (95%) : US$ 11.59 Bn Cost for Competitors (5%) : US$ 0.61 Bn
- 23. 23 Smart Solution : Plan 2 30 days Offshore Supply Agreements Forward Placed Reserves (“FPR”) at No Cost to GOI In the National Interest Synergy Downstream Solutions 5
- 24. Energy Buffer Reserve (“EBR”) : GOI Reg. No. 79, year 2014 24 Downstream Energy Security Through Regulatory Reform NO emergency reserves Forecast to import > 80% of Oil Fuels plus Crude Oil and >70% of LPG by 2025 Emergency access required to 30 days imports equivalent (Oil Fuels, LPG, Crude Oil) EBR to be gradually increased to 90 days GOI unable to finance EBR since year 2001 GOI Reg. No. 79, year 2014 (National Energy Policy) mandates GOI finance and operate. Synergy Downstream Solutions GOI Requirements and Challenges Draft Regulation proposes to increase EBR to 30 days TOTAL NATIONAL DEMAND (20 % increase in EBR size and cost )
- 25. Energy Buffer Reserve (“EBR”) : GOI Reg. No. 79, year 2014 Continued Downstream Energy Security Through Regulatory Reform 2525 GOI financing constraints vs. priorities GOI self-imposed financing restrictions ( No private sector ) EBR may not be implemented for the foreseeable future . . . US$ 13.25 Bn + OPEX Synergy Downstream Solutions
- 26. Synergy Downstream Solutions EBR Requirements to 2025 ( 30 days Imports or Consumption ) Downstream Energy Security Through Regulatory Reform 26 Oil Fuels • Storage Capacity = 11,050,000 KL • Product Inventory = 9,200,000 KL • 30 days “Consumption” adds 20% Crude Oil ( NO new Refineries ) • Storage Capacity = 1,510,000 KL • Crude Inventory = 1,250,000 KL • 30 days “Consumption” adds 20% LPG • Storage Capacity = 683,000 Ton • LPG inventory = 560,000 Ton • 30 days “Consumption” adds 30% 30 Days Imports 30 Days Imports 30 Days Imports KL KL Ton Data subject to year 2016 revalidation - Awaiting MIGAS data Assumes 80% tank occupancy
- 27. EBR Requirements to 2025 ( 30 days Imports or Consumption ) Downstream Energy Security Through Regulatory Reform 27 Cost ? Who Pays ? Can Pay ? Other Priorities ? Why Pay ? Synergy Downstream Solutions 30 Days Imports 30 Days Consumption Value Added Competing Priorities ! Data subject to year 2016 revalidation
- 28. Plan No. 2 EBR Challenge and FPR Solution Downstream Energy Security Through Regulatory Reform 28 GOI Budget Constraints and Competing National Priorities Forward Placement endorsed by ESDM Synergy Downstream Solutions Value Added Competing Priorities EBR Insurance Policy
- 29. Financed by GOI Financed by Private Sector Plan No. 2 EBR Challenge and FPR Solution Downstream Energy Security Through Regulatory Reform 29 Forward Placement endorsed by ESDM Synergy Downstream Solutions Value Added Competing Priorities EBR Insurance Policy 1st Step Smart Solution NO COST to GOI • Forward Placed Reserves (“FPR”) with EBR Functionality • Regulatory Reforms and Private Sector Investment 2nd Step - Implement EBR when GOI can finance ! Forward Placed Reserves
- 30. Downstream Energy Security Through Regulatory Reform Plan No. 2 : FPR ( With 30 days EBR Functionality ) Continued DEN / Synergy Downstream Solutions / Q Energy 3030 Supply Agreement Imports ( With LoC’s ) EBR Imports ( With LoC’s ) 30 days reserves available to GOI in any Emergency All Terminal operational costs are additional and incurred by GOI OPR 30 days Gen Wholesalers EBR 30 days Government OFFSHORE Suppliers / Traders Suppliers / Traders currently incur ALL storage and inventory costs OFFSHORE In Emergency Overseas Indonesia EBR Cost to GOI US$ 13.25 Billion Oil Fuels LPG, Crude Oil Pre-ship Supply Agreement Imports Refineries Consumers Reduce and RELOCATE Costs Offshore Suppliers / Traders Wholesalers Commercial Storage Government Hyperlink
- 31. Downstream Energy Security Through Regulatory Reform Plan No. 2 : FPR ( With 30 days EBR Functionality ) Continued DEN / Synergy Downstream Solutions / Q Energy 3131 EBR Imports ( With LoC’s ) 30 days reserves available to GOI in any Emergency OPR 30 days Gen Wholesalers EBR 30 days Government OFFSHORE Suppliers / Traders Suppliers / Traders currently incur ALL storage and inventory costs OFFSHORE In Emergency Overseas Indonesia EBR Cost to GOI US$ 13.25 Billion Oil Fuels LPG, Crude Oil FPR Commercial Bonded Storage Oil Fuels LPG, Crude Oil Supplier / Trader 30 days Imports Pre-ship Supply Agreement Imports Wholesalers Take Delivery ( NO LoC’s ) 1st Step - FPR NO Cost to GOI Suppliers / Traders must “Forward Place” and maintain 30 days Supply Agreement volumes in FPR at their cost. Offshore storage and inventory costs reduced / incurred in FPR Refineries Terminals can be Build – Operate - Transfer NO COST to GOI ( If no Products withdrawn ) No Cost to Pertamina / Competitors Consumers Reduce and RELOCATE Costs Offshore Suppliers / Traders Wholesalers Commercial Storage Government RELOCATES Storage and Inventory Costs Hyperlink GOI guarantees FPR Terminal imports usage and independence
- 32. Plan No. 2 : FPR ( With 30 days Imports EBR Functionality ) Continued Summary EBR vs FPR Downstream Energy Security Through Regulatory Reform 3232 Description Energy Buffer Reserve Forward Placed Reserves Reserves ( Import days ) 30 days 30 days Reserves Stored Oil Fuels, LPG, Crude Oil Fuels, LPG, Crude GOI Emergency Access Immediate Immediate Cost to GOI US$ 13.53 ( Plus OPEX ) NO COST Cost to Pertamina No Cost No Cost / Potentially Lower Cost Pertamina Market Share No Change No Change Operating Costs Additional ( for GOI ) Additional ( for CS Co’s ) Reserves / Storage Type Static / Closed Dynamic / Open Access / Bonded Reserves Ownership / Liability Government Offshore Suppliers, Traders, NOC’s Storage Ownership Government Commercial Storage ( BOT? ) Storage Operations Government (or Nominee) Commercial Storage Co’s
- 33. Plan No. 2 : FPR ( With 30 days Imports EBR Functionality ) Continued Downstream Energy Security Through Regulatory Reform 33 Cost ? Oil Fuels : US$ 10.13 Bn Crude Oil : US$ 1.30 Bn LPG : US$ 1.82 Bn Who Pays ? ( NO COST to GOI ) Synergy Downstream Solutions Commercial Storage Companies, Offshore Traders, Suppliers and NOC’s Data subject to year 2016 revalidation
- 34. 34 Summary - OPR and FPR Addition Storage, Inventory and Costs In the National Interest Synergy Downstream Solutions 6
- 35. OPR + FPR Additional Storage and Inventory to year 2025 Downstream Energy Security Through Regulatory Reform 35Synergy Downstream Solutions Oil Fuels Increase • Storage = 19,200,000 KL • Inventory = 17,300,000 KL • 30 days “Consumption” add 20% Crude Oil ( NO new Refineries ) • Storage = 3,283,000 KL • Inventory = 3,882,000 KL • 30 days “Consumption” add 20% LPG • Storage = 1,469,000 Ton • inventory = 1,092,000 Ton • 30 days “Consumption” add 30% + 283% + 129% + 408% Data subject to year 2016 revalidation
- 36. OPR + FPR Costs to year 2025 Downstream Energy Security Through Regulatory Reform 36Synergy Downstream Solutions Cost ? Oil Fuels : US$18.25 Bn Crude Oil : US$ 3.35 Bn LPG : US$ 3.85 Bn Who Pays ? ( NO COST to GOI ) FPR OPR Data subject to year 2016 revalidation
- 37. OPR and FPR Implementation Sequence : NO COST to GOI Synergy Downstream Solutions 37 2015 2019 / 2020 2025 30 days30 days 30 days 30 days 10 to 15 days OPR FPR EBR 30 days EBR 30 days at GOI COST Downstream Energy Security Through Regulatory Reform Must Achieve Operational Status ! US$ 25.45 billion (1) OPR (2) FPR (3) EBR OPR and FPR 60 days NO COST to GOI 30 days 30 days >2025 Time Reserves 5 days? EBR Addition? 10 days? EBR Addition?
- 38. 38 Smart Solution Plan 3 Energy Security Through Level Playing Field Competition (“LPFC”) at No Cost to GOI In the National Interest Synergy Downstream Solutions 7
- 39. Downstream Energy Security Through Regulatory Reform Plan No. 3 : LPFC 39 Objective Removal of cross Ministerial Regulatory Barriers and Other Restrictions, which continue to prevent significant private sector investment in downstream energy security Endorsement by ESDM Pending Synergy Downstream Solutions Household Retail Wholesale Road Transport Ships and Barges AviationRefineries
- 40. Downstream Energy Security Through Regulatory Reform Plan No. 3 : LPFC Continued 40 Recommended Regulatory Reforms will : 1 Realize implementation of Article 7 (2) and Article 62 of Law 22 / 2001 2 Deliver additional energy security improvements at NO COST to GOI 3 Realise multiple storage and distribution supply chains and improve security, including Refineries 4 Realise substantial investment in sea, river and road transportation 5 Share mandatory OPR cost burden ( US$ 12.2 billion by 2025 ) 6 Deliver maximum benefits / lower prices to Consumers Synergy Downstream Solutions Energy Security
- 41. Downstream Energy Security Through Regulatory Reform Plan No. 3 : LPFC Continued 41 Recommended Regulatory Reforms will : 7 Create > 500,000 new jobs within 5 years 8 Implement transparent competitive tendering by SOE’s for all fuels to secure best price 9 Remove all Aviation Sector investment and competition barriers 10 Enables Pertamina to build on its strengths / address weaknesses 11 Empower DODO Retail Stations to compete and succeed with LPFC 12 Deliver best practice health and safety regulatory reforms Synergy Downstream Solutions Consumer Choice
- 42. Downstream Energy Security Through Regulatory Reform Plan No. 3 : LPFC Continued 42 Provisional Investment Requirement US$ 56 Billion up to 2025 Synergy Downstream Solutions 2 20,000,000,000 Household Retail Wholesale Road Transport Ships and Barges AviationRefineries
- 43. 43 Regulatory Reforms in the National Interest In the National Interest Synergy Downstream Solutions 8
- 44. Downstream Energy Security Through Regulatory Reform Regulatory Reforms in the National Interest 1. Regulatory Reforms are absolutely essential to secure private sector investment.( FPR can not be realised successfully under existing regulations ) 2. No reforms are difficult, unreasonable and all fully align with Indonesia’s energy security needs. 3. No regulatory reform weakens or undermines the authority of any Ministry. 4. Regulatory reforms must deliver “best practice” to realise energy security at NO COST to GOI and lowest cost for consumers 5. New Regulations of limited scope will be required 6. Some barriers and restrictions can be removed in days / weeks 7. Absolutely critical that proposed revisions to the Oil and Gas Law support and enable Downstream Private Sector Investment and Competition in the National interest. 44Synergy Downstream Solutions
- 45. Downstream Energy Security Through Regulatory Reform Regulatory Reforms in the National Interest Continued EXISTING Regulations to be reformed include but not limited to : 1. Ministry of Finance Reg. No. 143/PMK.04/2011 and Amendments ( Bonded Storage ) 2. Ministry of Trade Reg. No. 03/M-DAG/PER/1/2015 ( Import / Export of Fuel ) 3. Ministry of Trade Reg No. 27/M-DAG/PER/5/2012 ( Importers Identity No. API must not apply to overseas traders using bonded storage ) 4. Ministry of Trade - Government Reg. No. PP 39, year 2014 ( Negative List - Distributors and other issues ) 5. Ministry of Transport - Government Reg. No. PP 39, year 2014 ( Negative List - Storage Terminals & Jetties / Transportation foreign ownership ) 6. BKPM - Business License procedures ( Preventing company importing, exporting and wholesaling ) 45 In Progress Completed
- 46. Downstream Energy Security Through Regulatory Reform Regulatory Reforms in the National Interest Continued EXISTING Regulations to be reformed include but not limited to : 7. Ministry of Energy Reg. No. 36, year 2004 ( National Petroleum and Crude Oil reserves and other issues ) 8. MIGAS Business Permit Requirements and Restrictions ( Permit validity periods, storage approvals, co-sharing, import quotas, import approval recommendations, etc. ) 9. BPH MIGAS PP 67, year 2002 – Regulatory Agency ( Roll / Responsibilities ) 10. BPH MIGAS - Public Sector Obligation ( Appointment and distribution of subsidised Oil Fuels and LPG ) 11. Government Regulation No. 15, year 2015 ( Value Added Tax Treatment for Marine Fuel Sales to International Shipping ) 12. Other Regulations 46Synergy Downstream Solutions
- 47. 47 Downstream Energy Security Oversight and Regulatory Compliance In the National Interest Synergy Downstream Solutions 9
- 48. 48 Downstream Energy Security Through Regulatory Reform Downstream Energy Security : Monitoring, Compliance and Enforcement 1. BPH Migas to be reformed, restructured / assigned total operational oversight and regulatory enforcement responsibility as “Downstream Energy Security Authority” (“DESA”) Oil Fuels (Including Biofuels), LPG and Crude Oil OPR, FPR (and eventually EBR) Imports, domestic production, storage and distribution PSO (Oil Fuels and LPG) Enforcement of LPFC Maintaining real time supply chain database / demand forecasts Taking pre-emptive action to avoid potential supply disruptions Responding rapidly / effectively when supply disruptions occur to minimise impacts Monitoring, reporting and enforcing energy security compliance using remote monitoring / on-line information technology DESA ( regulator ) independent of ESDM ( permit issuer ) Live Project Synergy Downstream Solutions
- 49. 49Synergy Downstream Solutions * Oil Fuels, LPG, Biofuel and Crude Oil In the National Interest End of Presentation Realising Downstream Energy Security* ( at NO COST to Government ) through Regulatory Reforms and Competition
- 50. 50Synergy Downstream Solutions * Oil Fuels, LPG, Biofuel and Crude Oil In the National Interest Backup Slides
- 51. Forward Placed Reserves Key Operational Features 51DEN / Synergy Downstream Solutions In the National Interest A
- 52. Plan No. 2 : FPR ( With EBR Functionality ) Downstream Energy Security Through Regulatory Reform 5252DEN / Synergy Downstream Solutions / Q Energy FPR vs EBR FPR not Not Constrained by Gov. Reg. No. 79, year 2014 FPR by design includes 30 days EBR functionality at NO COST to GOI FPR is the 1st STEP fast-track Energy Security Solution FPR cannot be increased beyond 30 days at “No Cost to GOI” EBR can be implemented when reserves to be increased beyond 30 days ( say up to 60 days and GOI can finance) FPR + EBR = Access to 60 days reserves for the price of 30 days reserves! Both FPR and EBR can be implemented in parallel with no risks to private sector investment / operation of FPR FPR terminals are open access, bonded storage and can convert to EBR operation at a future date if GOI requires / Forward Placement endorsed by ESDM for Implementation
- 53. Synergy Downstream Solutions Downstream Energy Security Through Regulatory Reform Plan No. 2 : FPR ( With EBR Functionality ) Continued 5353 Item Key Operational Features 1 Offshore Suppliers / Traders relocate / incur existing offshore storage / inventory costs in Indonesia using designated FPR commercial storage terminals 2 Wholesalers select and appoint all Suppliers / Traders 3 Forward Placed Products are tied to binding Supply Agreements with Wholesalers 4 Suppliers / Trader pre-ship / own all products in FPR Terminals until “Delivery” 5 Wholesalers take “Delivery” of products domestically via FPR terminals 6 Suppliers / Traders can freely import / re-export products via FPR Terminals 7 Letters of Credit / Import approvals no longer required 8 Terminals are open access, commercial bonded storage World class standards 9 All terminals operate 100% Independent of Buyers, Sellers & SOE’s 10 GOI guarantees product import throughputs for FPR terminals ( 10 years )
- 54. Downstream Energy Security Through Regulatory Reform Plan No. 2 : FPR ( With EBR Functionality ) Continued 5454 Item Key Operational Features 11 GOI mandates “30 days Forward Placement” included in all Supply Agreements 12 FPR terminals can be used for OPR / Regional Trading Hubs 13 Supplier / Trader invoices Buyer for payment processing upon transfer of product into FPR. Invoice paid when product withdrawn from FPR 14 DESA ( former BPH Migas ) oversees and enforces forward placement compliance 15 No investor may majority own >1 Terminal of each type (oil fuels, LPG or crude oil). 16 Government has immediate access to all FPR products in any emergency 17 Government pays for products withdrawn from FPR an emergency 18 Government / Pertamina / SOE / Competitors can be minority investors in all FPR terminals and receive dividends but cannot operate FPR terminals 19 Real time, online remote access monitoring of imports, storage inventory, offtake data Synergy Downstream Solutions Hyperlink
- 55. Forward Placed Reserves (“FPR”) Stakeholder Value Propositions 55DEN / Synergy Downstream Solutions In the National Interest B
- 56. Downstream Energy Security Through Regulatory Reform 56 FPR Stakeholder Propositions : GOI 1. Dramatically improves energy security at no cost to GOI. 2. Provides unrestricted access to 30 days of imports to address supply disruptions / emergencies. (GOI only pays for products withdrawn) 3. Triggers significant private sector investment. 4. Enables GOI limited finances to be targeted at sectors of the economy with multiplier effects. (dedicated EBR financed / owned by GOI is an exceptionally expensive insurance policy that may never be used) 5. Delivers “best in class” storage terminals operating on-par / better than all regional terminals. 6. Creates Regional Trading Hub business opportunities (further increasing product inventories in the country) 7. Creates employment and services sector business opportunities. 8. Terminals can be “Build-Operate-Transfer” DEN / Synergy Downstream Solutions
- 57. Downstream Energy Security Through Regulatory Reform 57 FPR Stakeholder Propositions : GOI Continued 9. Generates substantial tax revenues, which currently remain offshore. 10.Underpins investor confidence across all sectors of the economy by demonstrating energy security issues are being resolved effectively by GOI 11.Ensures effective implementation / quality control of biofuel blending at source, prior to distribution. 12.Provides full import, storage and distribution inventory oversight via continuous, real time, online data access. 13.Includes option to invest / receive shareholder dividends in addition to tax revenues. 14.Negotiated “Terminal Concession Agreements” can deliver terminals up to one (1) year earlier by comparison to competitive tendering thereby accelerating improvements in energy security DEN / Synergy Downstream Solutions
- 58. Downstream Energy Security Through Regulatory Reform 58 FPR Stakeholder Propositions : General Wholesalers 1. Import quotas, paperwork, bureaucracy, shipping delays and financial consequences eliminated. Products imported in advance by Suppliers and off-taken “domestically” by General Wholesalers. 2. Immediate access to additional 30 days of “domestic” inventory, reducing supply disruption risks and consequences. 3. Product liability, costs and risks for Supplier’s account while Products held in FPR storage. NO “Letters of Credit” required for imports! 4. Product title / liability passes to General Wholesalers when Products withdrawn from FPR. ( No increase in working capital ) 5. Payment of domestic duties, taxes and BPH Migas contributions made when Products withdrawn from FPR storage. 6. Cost of Products off taken from FPR terminals should be no more expensive for General Wholesalers than products CIF to Indonesia 7. Spot market purchases available from FPR DEN / Synergy Downstream Solutions/ Q Energy PERTAMINA & COMPETITORS
- 59. Downstream Energy Security Through Regulatory Reform 59 FPR Stakeholder Propositions : General Wholesalers Continued 8. Product supply agreements / swop agreements concluded between General Wholesalers and/or Suppliers while products held in FPR storage not liable for BPH Migas Contribution payments. 9. Operational flexibility to import directly to OPR terminals / end users 10.FPR storage capacity can be leased for OPR requirements: Enables direct delivery of products to end user consumers Reduces supply chain costs (Eliminates transhipment and intermediate OPR storage costs) Delays payment of duties, taxes and BPH Migas contribution until products are withdrawn for transhipment and/or delivery to end user consumers. 11.Opportunity to become a minority investor in “open access” FPR storage terminals (but NOT an operator) 12.Provides continuous, real time, online access (imports, storage inventory and offtake data) DEN / Synergy Downstream Solutions PERTAMINA & COMPETITORS
- 60. Downstream Energy Security Through Regulatory Reform 60 FPR Stakeholder Propositions : Commercial Storage Providers 1. Lowest investment risks with 10 year “Concession Period” guarantees covering FPR terminal usage and volume throughputs 2. To further improve the investment business case: General Wholesalers can lease storage for OPR requirements Offshore Suppliers without an established / registered company or API can use storage without restriction. Terminals can be expanded to develop Regional Trading Hub capabilities VAT shall not be charged on energy consumption Terminals of different product types can be combined on common sites (e.g. oil fuels and LPG) All terminals will be bonded storage and operate on-par with / better than those of regional neighbours DEN / Synergy Downstream Solutions INVESTORS & OPERATORS
- 61. Downstream Energy Security Through Regulatory Reform 61 FPR Stakeholder Propositions : Commercial Storage Providers 3. No import / export restrictions, duties or taxes apply to products held in FPR storage 4. Domestic and Overseas Investors can majority own (potentially 100%) of storage terminals and jetties 5. Suppliers / Traders / General Wholesalers / the public can invest in FPR terminals with the following provisos: They may only be minority shareholders and receive dividend payments. They cannot be involved in the day to day operation of FPR terminals, which must remain total independent. 6. GOI will have the option to option to invest / receive shareholder dividends as minority shareholder but will not be involved in day-to-day operations 7. Can participate in competitive tenders to secure 10 year “Concession Period” extensions prior to expiry of existing concessions DEN / Synergy Downstream Solutions INVESTORS & OPERATORS
- 62. Downstream Energy Security Through Regulatory Reform 62 FPR Stakeholder Propositions : Suppliers and Traders 1. Lowest risk medium / long term supply agreements with guaranteed domestic offtakes and payments. 2. No speculative onshore inventory or storage costs 3. “Relocates” offshore storage and inventory costs to Indonesia and reduces offshore costs. 4. Provides assured access to “best in class” independent commercial storage potentially at lower cost than regional neighbours 5. Lowest risk “Escrow account functionality” 6. Bulk import capability by comparison to current multiple shipments (consequence of water depth, berthing and/or storage capacity restrictions) 7. Regional Trading Hub business opportunities without the need to invest in storage infrastructure. 8. Operational flexibility to import directly to OPR terminals DEN / Synergy Downstream Solutions
- 63. Downstream Energy Security Through Regulatory Reform 63 FPR Stakeholder Propositions : Suppliers and Traders Continued 9. Spot market and product swop opportunities. 10.No import or export restrictions, duties or taxes. All FPR terminals will be “open access” bonded storage. 11.Regulatory reforms align all FPR operations with international best practice. 12.FPR terminals operated by well-established recognised brands, immediately associated with best practice and professionalism 13.Offshore Suppliers / Traders without established / registered companies or API’s can use FPR terminals without restriction. 14.Opportunity to become a minority investor in “open access” FPR terminals (but NOT an operator) 15.Provides continuous, real time, online access (imports, storage inventory and offtake data) DEN / Synergy Downstream Solutions
- 64. Implementation and Realization of OPR, FPR, LPFC and DESA 64DEN / Synergy Downstream Solutions In the National Interest C
- 65. Phase 1 : Implementation and Realisation ( 3 year Project ) Downstream Energy Security Through Regulatory Reform 65DEN / Synergy Downstream Solutions Implementation Plans Endorsed and Issued March 2015
- 66. Implementation Plans 1, 2 & 3 ( OPR, FPR and LPFC ) Downstream Energy Security Through Regulatory Reform 66DEN / Synergy Downstream Solutions / 1. Appoint Steering Committee / Tender Board comprising : 2. Appoint Regulatory Reform Implementation Team (“RRIT”) : 3. Stakeholder Consultations / Regulatory Reform Implementation 4. Restructure / Resource / Upgrade BPH Migas to DESA • ESDM • Ministry of Transportation • BKPM • BPH Migas • Ministry of Trade • DEN • Ministry of Finance • ESDM • Ministry of Transportation • BKPM • BPH Migas • Ministry of Trade • DEN • Ministry of Finance • Ministry of State Owned Enterprises • Consultant ( Synergy Downstream Solutions ) Essential Action / Implement cross Ministry Regulatory Reforms to deliver energy security at NO COST to GOI Consultant to run workshops with SC and RRIT as a priority! • Regulatory Reform Implementation Team • BPH Migas • Consultant ( Synergy Downstream Solutions )
- 67. Implementation Plan No. 1 : OPR Downstream Energy Security Through Regulatory Reform 67DEN / Synergy Downstream Solutions Action and Implementation Plans
- 68. 1. Fast track removal of bureaucratic restrictions and regulations that unnecessarily impose additional supply chain costs : 2. Resolve the critical shortage of LPG storage for public service obligations! 3. Combine new OPR storage with FPR storage terminals on common sites to reduce capital cost and significantly improve supply chain efficiency 4. Conduct review / assessment of existing storage infrastructure by geography to confirm achievable implementation timeframe for 30 days mandatory OPR Implementation Plan No. 1 : OPR Downstream Energy Security Through Regulatory Reform 68DEN / Synergy Downstream Solutions • Scrap import Quotas • Scrap restrictions on co-sharing storage • Scrap import approvals / surveys • Simplify / expand bonded storage permits • Scrap MIGAS approval requirements to lease additional commercial storage • Mandate Pertamina to lease new onshore commercial storage as a national priority • Mandate Pertamina lto ease additional floating storage as an interim solution !! • Consultant ( Synergy DSS )
- 69. Implementation Plan No. 2 : FPR Downstream Energy Security Through Regulatory Reform 69DEN / Synergy Downstream Solutions Implementation Plans
- 70. Implementation Plan No. 2 : FPR 1. Validate FPR Business Model Operation ( Reg. Reforms Trial ) 2. Appoint Project Implementation Team comprising : 3. Identify Viable Sites / Prepare Terminal Data and Tender Packages 4. Identify / prequalify Potential FPR terminal Investors / Operators Downstream Energy Security Through Regulatory Reform 70DEN / Synergy Downstream Solutions • ESDM (Team Leader ) • BPH Migas • Ministry of Trade • DEN • Ministry of Finance • Consultant ( Synergy ) • ESDM (Team Leader ) • Ministry of Transportation • BKPM • BPH Migas • Ministry of Finance • Consultant ( Synergy ) • Project Implementation Team • Project Implementation Team
- 71. Implementation Plan No. 2 : FPR 5. Issue “10 year Concession Periods” Tenders ( for Investors with NO viable sites of their own ) 6. Negotiate “10 year Concession Periods” ( for Investors WITH viable sites ) 7. Steering Committee / Tender Board approval “10 year Concession Period” awards 8. FPR Terminals constructed by Investors / progress monitored 9. FPR Terminals commissioned and operational Downstream Energy Security Through Regulatory Reform 71DEN / Synergy Downstream Solutions • Project Implementation Team • FPR Terminal Investors • Steering Committee / Tender Board • FPR Terminal Investors • Project Implementation Team ( Monitoring / Assistance only ) Recommend to negotiate GOI “10 year Concession Periods” with Investors having viable FPR sites. Negotiated concessions can enable FPR terminals to be commissioned 6 months earlier (end 2018 / early 2019) • Project Implementation Team
- 72. Implementation Plan No. 3 : LPFC Downstream Energy Security Through Regulatory Reform 72DEN / Synergy Downstream Solutions Implementation Plans
- 73. Implementation Plan No. 3 : LPFC Downstream Energy Security Through Regulatory Reform 73DEN / Synergy Downstream Solutions 1. Secure ESDM endorsement to Implement 2. Fast-track removal of formal and informal barriers preventing investment in energy security (e.g.) 3. Share cost burden of 30 days mandatory OPR between Pertamina and Competitors • Aviation, LPG and Marine fuels market sectors • Oil Fuels supplies to SOE’s
- 74. Downstream Energy Security Priority Next Steps 74DEN / Synergy Downstream Solutions In the National Interest D
- 75. Priority Next Steps ( OPR, FPR and LPFC ) Downstream Energy Security Through Regulatory Reform 75DEN / Synergy Downstream Solutions 1. Draft Oil and Gas Law MUST avoid a downstream investment disaster and an energy security crisis !! Absolutely Essential !! ( See Synergy Review and Recommendations ) 2. Provide copy of all draft New Regulations for storage terminals, bonded storage etc. to enable Consultants to review / confirm key regulatory reforms have been fully accommodated to deliver NO COST to GOI solutions 3. Consultants workshop with all GOI ministries collectively whose regulations must be correctly reformed to deliver NO COST to GOI solutions. 4. Mobilize Steering Committee, Regulatory Reform Implementation Team and Project Implementation Team to enable FPR terminals to be fast tracked before Presidential election ( 2019 )
- 76. Priority Next Steps ( OPR, FPR and LPFC ) Downstream Energy Security Through Regulatory Reform 76DEN / Synergy Downstream Solutions 5. Make available copy of all Pertamina / Competitor supply, demand, sales and infrastructure data for oil fuels, LPG and crude oil for Project Consultants to : • Validate supply and demand forecasts, infrastructure and reserves / investment requirements • Enable GOI to confidently guarantee FPR terminal throughputs for “10 year concession periods” • Determine FPR terminal capacities, costs and locations taking account of : • Impact of proposed new refineries / crude oil imports • Inevitable changes to existing oil fuels transshipment routes • Confirm additional OPR infrastructure and reserve requirements / locations Data remains outstanding !
- 77. Priority Next Steps ( BPH MIGAS / DESA ) Downstream Energy Security Through Regulatory Reform 77DEN / Synergy Downstream Solutions 6. Ensure new Oil and Gas Law includes DESA ( restructured / empowered BPH Migas ) NOTE 1. Essential to reform / empower BPH Migas to have total regulatory oversight and enforcement responsibility for Downstream Energy Security! 2. Regulatory oversight and enforcements must be INDEPENDENT of permitting and licensing to ensure appropriate “check’s and balances” exist and the potential for corrupt practices minimized
- 78. Downstream Energy Security Through Regulatory Reform 78DEN / Synergy Downstream Solutions / Q Energy Priority Next Steps Review analysis of draft New Oil and Gas Law to verify identified consequences with regards to Downstream (1) 1. Review proposed text revisions to the draft New Oil and Gas Law to align with original Objectives and deliver downstream energy security at NO COST to GOI (1) • FPR • Mandatory OPR • LPFC Endorse and incorporate revisions as appropriate in the revised draft Law. 3. Hold “Focus Group” events with downstream stakeholders (National and Overseas companies to discuss/ agree revised draft Law) 4. Consistently keep in focus … • Who will pay the US$ 82 billion energy security bill if Domestic and Overseas private sector are excluded? (1) Documents prepared by Downstream Energy Security Project
- 79. 79 Oil and Gas Law ( Downstream Requirements ) In the National Interest jeff.wilson@synergydss.com E
- 80. Downstream Energy Security Through Regulatory Reform Oil and Gas Law : Downstream Requirements ( Objectives ) 80jeff.wilson@synergydss.com 1. Processing, Transportation, Storage and Trading Objective : Effective implementation and control of downstream activities 2. Efficient Oil and Gas supplies to consumers as fuel and raw materials Objective : Meet domestic demand within framework of national energy security / Enable creation of added value for Industry and the economy 3. Availability to Consumers Objective : Support and encourage growth of national capacity and investment through level playing field competition (LPFC) 4. Cost of oil and gas supplies to consumers Objective : Realise lowest cost to consumers through LPFC 5. Increase State revenues, strengthen Industry & Trade Objective : Increase State revenues / Strengthen Indonesian Industry and Trade 6. Jobs, prosperity, safety, and the environment Objective : Create jobs / Increase peoples welfare and prosperity 7. Realise and Strengthen Downstream Energy Security Objective : Fast-Track, realise, continually strengthen downstream energy security by all means, at lowest cost /no cost to GOI in the shortest timeframe. Transparency Competition Efficiency Competitiveness Oversight and Control Significant Private Sector Investment O & G Objectives to be Achieved through :
- 81. Downstream Energy Security Through Regulatory Reform Oil and Gas Law : Downstream Requirements ( Realisation ) To FAST-TRACK and realise Downstream Energy security at NO COST to GOI the following LIMITED ACTIONS are required with respect to Law No. 22, year 2001: Fully implement Article 7.2 “Downstream Business Activities … shall be conducted through the mechanism of fair, healthy, and transparent business competition” Fully Implement Article 62 At the time this Law comes into effect Pertamina shall continue to perform its duty to supply and serve Petroleum Fuel for domestic requirements for a maximum period of 4 (four) years. Embrace and promote private sector investment in energy security NO Aggregator and DO NOT include Oil and Gas imports under Article 33 of the Constitution Article 33 does not apply to imports! Crude Oil, Oil Fuels and LPG imports will account for >80% of national demand by 2025 ! 81jeff.wilson@synergydss.com
- 82. 82 Downstream Energy Security Through Regulatory Reform Oil and Gas Law : Downstream Requirements ( Realisation ) BPH Migas to be reformed, restructured / assigned total operational oversight and regulatory enforcement responsibility as “Downstream Energy Security Authority” (“DESA”) Oil Fuels (Including Biofuels), LPG and Crude Oil OPR, FPR (and eventually EBR) Imports, domestic production, storage and distribution PSO (Oil Fuels and LPG) Enforcement of LPFC Maintaining real time supply chain database / demand forecasts Taking pre-emptive action to avoid potential supply disruptions Responding rapidly / effectively when supply disruptions occur to minimise impacts Monitoring, reporting and enforcing energy security compliance using remote monitoring / on-line information technology DESA ( regulator ) independent of ESDM ( permit issuer ) Live Project jeff.wilson@synergydss.com
- 83. 83 Oil and Gas Law Proposals Undermining Downstream Energy Security In the National Interest jeff.wilson@synergydss.com F
- 84. O&G Law Proposals Undermining Downstream Energy Security Oil Fuels Aggregator CONSEQUENCES : Eliminates ALL competition (National and Overseas companies) Aggregator supplies and could compete directly with national and overseas companies Reinstates Pertamina’s absolute monopoly Note : Pertamina is already an “Aggregator for the 95% market share its holds. Consequences of a reinstated monopoly include continued gross underinvestment, higher prices (e.g. aviation) and unacceptable energy security shortfalls / risks May lead to nationalization of National Company / Overseas Company assets Eliminates multiple supply chains, increases energy security shortfalls / risks Private sector investment minimized requiring GOI finance (up to US$82 Billion) Results in higher fuels prices for consumers Aggregator is a wholesaler selling to competitor wholesalers ( wholesaling costs will increase and passed on to consumers through higher prices ) Downstream Energy Security Through Regulatory Reform 84jeff.wilson@synergydss.com
- 85. O&G Law Proposals Undermining Downstream Energy Security Oil Fuels Aggregator 1. Eliminates all National and Overseas competition and reinstate Pertamina’s monopoly 2. May nationalise private sector assets before or when competitor licenses expire 3. Pertamina as “Downstream Aggregator” with a total supply and market monopoly, will have multiple conflicts of interests and no incentive to increase efficiency, reduce costs and compete Downstream Energy Security Through Regulatory Reform 85 Before ( Competition & Choice ) After ( 100% Monopoly )
- 86. O&G Law Proposals Undermining Downstream Energy Security Oil Fuels Aggregator 4. Undermines / prevents significant private sector investment ( > US$ 82bn by 2025 ) in energy security which GOI must now finance but is unable to do so 5. Result in Pertamina (or GOI) incurring the entire additional OPR cost burden (US$ 12.2 Bn) 6. Prevent FPR from being implemented at NO COST to GOI (US$13.53 Bn) 7. Requires GOI to predominately fund ALL downstream energy security shortfalls (US$ 82 Bn) Downstream Energy Security Through Regulatory Reform 86 Before ( Private Sector Pays) After ( GOI and Pertamina Pay )
- 87. O&G Law Proposals Undermining Downstream Energy Security Oil Fuels Aggregator 8. Increases energy security shortfalls and risks and result in supply disruptions and potential energy security crises through underinvestment and the absence of competition 9. Increases consumer fuel prices and undermine competitiveness. 10. Undermines investment across all sectors of the economy as a consequence of energy security shortfalls, supply disruptions and risks 11. Provides no independent regulatory oversight and control of the downstream energy security supply chain 12.Fails to achieve ALL Objectives Downstream Energy Security Through Regulatory Reform 87 • No “Transparency” • No “Competition” • No “Efficiency” • No “Competitiveness” • No “Oversight & Control” • No Significant Private Sector Investment
- 88. O&G Law Proposals Undermining Downstream Energy Security Oil Fuels Aggregator Keep in focus at ALL TIMES • Who will pay the US$ 82 billion for energy security if Domestic and Overseas private sector are excluded? Downstream Energy Security Through Regulatory Reform 88 GOI PAYS !
- 89. Downstream Energy Security Through Regulatory Reform 89DEN / Synergy Downstream Solutions / Q Energy Oil Fuels Aggregator : Alternative Solution If New refineries are constructed it is expected oil fuels products produced will be more expensive than direct imports. To underpin the stand-alone investment case in New Refineries revisions to Law No. 22, year 2001 could incorporate the following solution to eliminate the need for the Oil Fuels Aggregator / Pertamina monopoly : All Wholesalers (including Pertamina) are obliged to source a fixed percentage of their annual sales demand from new refineries and offtake via Pertamina terminals Wholesalers can freely import the balance of their requirements and are free to aggregate the price (domestic + imported products) before selling to customers The forgoing approach ensures: All new refineries are fully loaded underpinning their investment cases Market competition flourishes in a level playing field environment Private sector investment is secured to address energy security shortfalls However….Consumers must pay marginally more overall as a consequence of products from new refineries being more expensive than imports
- 90. 90 Miscellaneous In the National Interest jeff.wilson@synergydss.com G
- 91. 91DEN / Synergy Downstream Solutions / Q Energy Downstream Energy Security Through Regulatory Reform Project Milestones Pertamina Participation 2012 2013 2014 2015 Major Milestones Mini Pertamina workshop Regulatory Reform Workshop – Planned BPH Migas Workshop - Planned 2016 - 2017 Public Hearings Oil and Gas Law Recommendations OPR Regulation Recommendations
- 92. EBR Requirements ( Infrastructure, Inventory, Cost ) Downstream Energy Security Through Regulatory Reform 92 Storage, Reserves and Costs up to 2025 Assumes 80% tank occupancy US$ 13.25 Billion up to 2025 1st Step ( to 2019 ) 6,600,000 KL 4 or 5 Terminals US$ 6.03 Billion 1st Step ( to 2019 ) 495,000 Tons 2 or 3 Terminals US$ 1.32 Billion 1st Step ( to 2019 ) 1,300,000 KL 1 or 2 Terminals US$ 1.13 Billion Note: EBR Terminals will be the LARGEST Storage Terminals in South East Asia ALL data subject to revalidation Synergy Downstream Solutions 30 days TOTAL NATIONAL DEMAND increases EBR cost to US$ 16 Billion !!
- 93. Synergy Downstream Solutions Plan No. 2 : FPR ( With 30 days EBR Functionality ) Continued Downstream Energy Security Through Regulatory Reform 93 Suppliers relocate Offshore costs and incur them in FPR US$ 13.25 Bn + OPEX FPR
- 94. 94 Downstream Energy Security Through Regulatory Reform Downstream Energy Security : Oversight and Challenges 1. No single Ministry or Body has : Regulatory responsibility / inventory oversight across the entire supply chain Ability to identify energy security risks in real time and take action. 2. OPR inadequate, not reported / verified and unknown in real time (mandatory OPR to be remotely monitored and enforced) 3. Imports / bonded storage operations conducted without oversight 4. LPG (PSO) supply & distribution outsourced / no independent oversight. 5. Subsidised Oil Fuels / LPG sales partially verified. Household Retail Wholesale Road Transport Ships and BargesAviation OPRFPR Synergy Downstream Solutions
- 95. 95 Downstream Energy Security Through Regulatory Reform Downstream Energy Security : Oversight and Challenges 7. Capacity / availability of storage and distribution Infrastructure unknown 8. No oversight / enforcement of level playing field competition 9. Penalizing / prosecuting companies engaged in monopolistic practises / price fixing not done. 10. Oversight / enforcement of biofuels problematic / not effectively monitored 11. Oversight and enforcement of FPR (and eventually EBR) essential 12. Ability to Identify / take pre-emptive actions to avoid supply disruptions / crisis situations cannot be done Household Retail Wholesale Road Transport Ships and BargesAviation OPRFPR Synergy Downstream Solutions