Local Content Achievement: A Quest For Sustainability of Oil and Gas Supporting Industry

Abstract

Achievement of Local Content Level or Tingkat Komponen Dalam Negeri (hereinafter referred to as "TKDN") in the procurement of goods and services in Indonesia upstream oil and gas sector consistently exceeds 50% since 2011, reaching average TKDN of 59% during past seven years (2011-2017) with its peak at 68% in 2015 despite the slump of oil prices.
Indonesia upstream oil and gas sector has been grooming the supporting industry since the first Production Sharing Contract was signed in 1966. Until today protective policy is still extensively implemented - even with a greater magnitude. The obligation of the procurement process to prioritize domestic products has led to impressive TKDN achievements.
TKDN is widely used as an indicator to measure the level of success of domestic industrial development. However, despite high TKDN, a phenomenon called "denationalization" of industry (i.e. ownerships of domestic manufactures or fabricators are taken over by their overseas principals, or sold to other overseas entities) has been brought to serious attention since a few years back. This phenomenon coupled with the strengthening of foreign currency values - especially the US Dollar - recently has led to the issue of the sustainability of the domestic industry in various public discussions.
This study is conducted to answer two key questions; does high TKDN achievement really reflect success level of industry, and, is the protective policy in a right path in reaching ultimate goal of industrial development in Indonesia - i.e. domestic industry that is independent, resilient and sustainable. The study also elaborates challenges and expectations for the supporting industry in facing future trend and technology in the oil and gas operations, as well as how to build a strong domestic industry that may contribute to reduce foreign exchange flight to overseas.