Minister Luhut Claims Inpex Agreed to Cut Masela Block Investment

Acting Energy and Mineral Resources (EMR) Minister Luhut Binsar Panjaitan has claimed that Inpex Corporation agreed to cut the amount of investment in the development of Masela Block. This means that only US$ 15 billion will be needed to develop this gas-rich block in the Arafuru Sea.

Luhut said that this figure was brought up when former EMR Minister Arcandra Tahar met with Inpex. At the meeting, which is thought to have taken place two weeks ago on Friday, 5 August 5, Arcandra asked Inpex to review the cost structure for the Masela Block development.

After reviewing the cost structure, Arcandra made several corrections and proposed a new investment figure for the project of US$15 billion. “The numbers were coming back, the changes were not made by Candra. He asked, ‘what’s your cost structure like?’ That’s all. They [Inpex] brought it up, Mr. Candra corrected them, they said OK, that is how the figure of US$15 billion came about,” Luhut said at the Coordinating Ministry for Maritime Affairs office on Thursday (18/8).

Luhut said that the figure might change because Inpex is currently recalculating its investment value. He added that the figure might even go lower than US$15 billion. The figure is far lower than the cost of the Masela Block investment previously proposed by Inpex, which according to Arcandra and Luhut, was US$22 billion.

(Read: Masela Block Investment to be Trimmed Down to US$15 Billion)

Luhut also requested the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) not to go public with the Masela Block issues. “SKK Migas wouldn’t dare to talk in public. Talk in my office, not to the public,” Luhut said.

Meanwhile, Inpex Corporation, as the operator of the Masela Block, refused to comment much on the issue. Inpex spokesperson Usman Slamet said that the company is in the process of discussing the project with the government in an effort to accelerate progress. “All stakeholders are trying to maximise the economic value of the project,” Usman told Katadata.

Katadata records show that Inpex proposed a US$14.8 billion investment to develop Masela Block under the offshore FLNG (Floating Liquefied Natural Gas) scheme. Developing the block using an onshore scheme by constructing pipelines to Aru would cost US$22.3 billion.

The Presidential Staff Office calculations, however were quite different. Investment for the FLNG scheme was estimated at US$18.2 billion, while the onshore scheme would only cost US$13.25 billion.

Arcandra met with Inpex on 5 August. At the meeting, the Energy Ministry’s Director General for Oil and Gas IGN. Wiratmaja Puja said that Arcandra was focused on the Masela Block project, which has been approved by President Joko Widodo. (Also read: Arcandra to Issue Final Decision on Masela Block Investment in 2018).

Wiratmaja said that to accelerate the project, the EMR Minister had provided several instructions. “For example, carrying out serial processes in parallel, such as doing the Environmental Impact Analysis at the same time as the Front-End Engineering Design [FEED],” Wiratmaja said at the EMR Ministry office on Friday, 5 August.

The government admitted that Inpex requires incentives for the project to run smoothly. At the very least, this would involve increasing the company’s return on investment ratio (IRR) to 15 percent.

The ministry will be having another meeting with Inpex next week to discuss incentives. The ministry will also form a special team to address the matter. The team will submit weekly reports to the EMR Minister.

Wiratmaja’s aim is to have final investment decision (FID) on the Masela Block project made by 2018. “So the start of the FID for the onshore scheme will be no different from that of the previous FID for the offshore scheme,” Wiratmaja said. (Read: EMR Ministry Drafts Masela Block Development Schedule Together with Inpex).

The meeting will discuss an action plan and the establishment of the Masela Block development acceleration team. “At the moment, we’ve prepared a timeframe to accelerate the Masela Block project,” Wiratmaja said after the meeting on Thursday (11/8).