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Indonesia

Oil Company Threatens Support for Indonesian Separatism 0214 GMT, 000224 U.S. oil company PT Caltex Pacific Indonesia and Indonesia's state oil Pertamina have been locked in negotiations for months over a share-splitting deal for the Coastal Plain Pekanbaru field in Indonesia's Riau, one of many restive provinces seeking greater autonomy from the government in Jakarta. Caltex, a joint venture of Chevron and Texaco, has insisted on retaining control of at least half the field's shares; Pertamina demands a 65 percent cut.

Pertamina has called on Jakarta to end the impasse. In response, Caltex has used its most dangerous bargaining chip. Last week, a company spokesman voiced his support for the Riau government's campaign to gain full control of the field when the company's contract ends in 2001, reported the Jakarta Post. The remark, whether bluff or guarantee, boils down to a direct assault on Indonesian unity for the simple sake of profit. The government in Jakarta will have no choice but to respond harshly  even if it means cutting Caltex out of the deal entirely.

Calls for autonomy in Riau are largely a function of economics. The province supplies more than half of Indonesia's oil and receives only 1.4 percent of the approximate $8 billion (59 trillion rupiah) it delivers to Jakarta annually, according to the Far Eastern Economic Review. In demanding autonomy, the province is demanding greater access to its own substantial revenue.

Under the central government's existing contract with Caltex, the company keeps 15 percent of the output and gives the rest straight to the central government. Gaining control of the Pekanbaru field would give Riau access to profits from the 70,000 barrels pumped per day. The local government would likely continue using Caltex to operate the field. In fact, the prospect of extracting a better deal from the local government may be a factor in the company's support for Riau.

But Riau's demands for increased autonomy are anathema to Indonesia unity. Jakarta relies on financial control of the resource-rich provinces to feed the center and fund the government. The areas most plagued by separatist violence  Timor, Aceh and Irian Jaya  are also the centers of the foreign-dominated extraction industry. Jakarta is now in the process of renegotiating many of the Suharto-era contracts with foreign extraction companies. If the government capitulates to one company, other companies may mimic its strategy.

Even more significantly, many Indonesians, including large factions of the political elite, argue that granting autonomy to the provinces would plot a collision course with total disintegration. Indeed, the country's stability under former President Suharto largely resulted from his ironclad control. President Abdurrahman Wahid initiated a debate in Jakarta over the possibility of federalism as a solution to Indonesia's problems  which drew harsh criticism and ended with him abandoning the idea and committing to stronger central control.

Jakarta will not take Caltex's challenge lightly. Without a doubt, the company has not improved its bargaining position by holding a knife to Jakarta's Achilles heel. Publicly, the central government has demanded that the company explain its "alleged attempt to provoke the Riau regional administration," reported Asia Pulse. Behind closed doors, Caltex is likely getting far more severe warnings. Ultimately, Jakarta may choose a surefire way to cut its risks: It may simply throw the company out and find a new firm to take over its production.

-- Bill P (porterwn@one.net), February 28, 2000

Answers

Bill,

I've been meaning to say I appreciate all your postings.

Todd

-- Todd Detzel (detzel@jps.net), February 28, 2000.