important issue than the fuel subsidies is that Indonesian energy production is far below its potential.

The way that oil production has been handled over the past few years is worse than a blunder and is close to a crime. Indonesia has 10 billion barrels of proven and potential oil reserves and 180 trillion cubic feet of proven and potential reserves. Nevertheless, Indonesia, Asia’s only member of OPEC, became a net importer of oil in 2004.

Pie Cutters and Pie Bakers

There are two types of political leaders: pie cutters and pie bakers. Pie cutters attain and maintain power by slicing the economic pie to placate opponents and reward friends. Pie bakers focus on making the economic pie larger so that the whole country moves forward.

Indonesia’s President Yudhoyono, a combination of General, intellectual and bureaucrat, has been a little of both during his first 11 months in office. But with the economic crisis caused by a weakening rupiah, a stock market swoon, and budget busting petro subsidies, he needs to quickly plant himself in the pie baking category.

The Oven is Ready

Many would categorize Indonesia as a relatively poor country but I beg to differ. I have toured Indonesia from tip to tip and it is a country with many assets and great promise. Rich in natural resources, a talented and young population, strategically positioned to benefit from Asian growth, a size three times the that of Texas and the world’s fourth largest population. As a relatively young democracy and developing economy it lacks an important ingredient for economic growth: capital and a fiscal system to allocate it wisely.

Let’s focus on just one important Indonesia asset that could dramatically jumpstart its economy and stock market while unleashing resources for badly needed education health and infrastructure. This asset is oil and natural gas. There has been much in the press about the staggering burden of the fuel subsidies: $7 billion in 2004 and about $14 billion expected by 2005. A bargain must be struck quickly: sharply reduce the fuel subsidies and in turn, increase spending on education and health projects such as urgent polio immunization programs.

Light the Fire

But perhaps a more important issue than the fuel subsidies is that Indonesian energy production is far below its potential.

The way that oil production has been handled over the past few years is worse than a blunder and is close to a crime. Indonesia has 10 billion barrels of proven and potential oil reserves and 180 trillion cubic feet of proven and potential reserves. Nevertheless, Indonesia, Asia’s only member of OPEC, became a net importer of oil in 2004.

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n office. But with the economic crisis caused by a weakening rupiah, a stock market swoon, and budget busting petro subsidies, he needs to quickly plant himself in the pie baking category.

The Oven is Ready

Many would categorize Indonesia as a relatively poor country but I beg to differ. I have toured Indonesia from tip to tip and it is a country with many assets and great promise. Rich in natural resources, a talented and young population, strategically positioned to benefit from Asian growth, a size three times the that of Texas and the world’s fourth largest population. As a relatively young democracy and developing economy it lacks an important ingredient for economic growth: capital and a fiscal system to allocate it wisely.

Let’s focus on just one important Indonesia asset that could dramatically jumpstart its economy and stock market while unleashing resources for badly needed education health and infrastructure. This asset is oil and natural gas. There has been much in the press about the staggering burden of the fuel subsidies: $7 billion in 2004 and about $14 billion expected by 2005. A bargain must be struck quickly: sharply reduce the fuel subsidies and in turn, increase spending on education and health projects such as urgent polio immunization programs.

Light the Fire

But perhaps a more important issue than the fuel subsidies is that Indonesian energy production is far below its potential.

The way that oil production has been handled over the past few years is worse than a blunder and is close to a crime. Indonesia has 10 billion barrels of proven and potential oil reserves and 180 trillion cubic feet of proven and potential reserves. Nevertheless, Indonesia, Asia’s only member of OPEC, became a net importer of oil in 2004.

tion, strategically positioned to benefit from Asian growth, a size three times the that of Texas and the world’s fourth largest population. As a relatively young democracy and developing economy it lacks an important ingredient for economic growth: capital and a fiscal system to allocate it wisely.

Let’s focus on just one important Indonesia asset that could dramatically jumpstart its economy and stock market while unleashing resources for badly needed education health and infrastructure. This asset is oil and natural gas. There has been much in the press about the staggering burden of the fuel subsidies: $7 billion in 2004 and about $14 billion expected by 2005. A bargain must be struck quickly: sharply reduce the fuel subsidies and in turn, increase spending on education and health projects such as urgent polio immunization programs.

Light the Fire

But perhaps a more important issue than the fuel subsidies is that Indonesian energy production is far below its potential.

The way that oil production has been handled over the past few years is worse than a blunder and is close to a crime. Indonesia has 10 billion barrels of proven and potential oil reserves and 180 trillion cubic feet of proven and potential reserves. Nevertheless, Indonesia, Asia’s only member of OPEC, became a net importer of oil in 2004.

eeded education health and infrastructure. This asset is oil and natural gas. There has been much in the press about the staggering burden of the fuel subsidies: $7 billion in 2004 and about $14 billion expected by 2005. A bargain must be struck quickly: sharply reduce the fuel subsidies and in turn, increase spending on education and health projects such as urgent polio immunization programs.

Light the Fire

But perhaps a more important issue than the fuel subsidies is that Indonesian energy production is far below its potential.

The way that oil production has been handled over the past few years is worse than a blunder and is close to a crime. Indonesia has 10 billion barrels of proven and potential oil reserves and 180 trillion cubic feet of proven and potential reserves. Nevertheless, Indonesia, Asia’s only member of OPEC, became a net importer of oil in 2004.

important issue than the fuel subsidies is that Indonesian energy production is far below its potential.

The way that oil production has been handled over the past few years is worse than a blunder and is close to a crime. Indonesia has 10 billion barrels of proven and potential oil reserves and 180 trillion cubic feet of proven and potential reserves. Nevertheless, Indonesia, Asia’s only member of OPEC, became a net importer of oil in 2004.

Signs that the Ignition is Broken

This production shortfall is primarily due to insufficient investment and delays in awarding exploration and production contracts. Let’s look at one example, Exxon Mobil’s Cepu block project. Exxon Mobil has operated in Indonesia for a century and invested $17 billion in the country, agreed to explore the dormant Cepu area years ago and by using advanced technology, found proven oil reserves of 600 million barrels and 1.7 trillion cubic feet of gas. Prepared to invest $3 billion to develop the project, it has been waiting for two years to move forward as Indonesia’s state-owned energy company Pertamania has been haggling over issues such as the government’s insistence on a $400 million up front signing bonus. That’s right, it wants $400 million from Exxon Mobil before it risks $3 billion of shareholder capital to develop the Cepu block. Meanwhile, Indonesia’s oil production levels have fallen to less than 900,000 barrels a day!

At peak production, Cepu would provide the GOI about $2 million per day in revenues, add 180,000 barrels a day in daily production and eliminate gas shortages in East Java. There are other projects that could be moved forward and in total could lead to baking an economic pie that could help lift all of the Indonesian people. Moving ahead with these projects would jumpstart the economy and bolster the confidence of foreign investors and capital markets. This is certainly a better option than sharply raising interest rates that choke economic growth and makes badly needed capital even more expensive.

The Fire is About to be Set

Our intelligence indicates that due to financial pressures on the Indonesian Government, a 30- year production sharing agreement will be signed this week. This will be a big step forwar