The application of local contents in the upstream oil & gas sector is expected to be able to stimulate Indonesians to be more self-reliant in managing their oil & gas resources. But it all depends on the good will and synergy of all stakeholders of the upstream oil & gas industry in Indonesia.

The application of local contents in the upstream oil & gas sector is expected to be able to stimulate Indonesians to be more self-reliant in managing their oil & gas resources. But it all depends on the good will and synergy of all stakeholders of the upstream oil & gas industry in Indonesia.

That was the comment given by oil & gas observer Gamil Abdullah in an interview
with PETROMINER concerning local content (the level of local component/ TKDN).

What definitions are used in gauging TKDN?

TKDN is Tingkat Komponen Dalam Negeri (local content). It means the portion of cost ‘carried out in Indonesia’ in making a product, for example, the assembling of a car. If the assembling, coating, making and fixing the seats and manufacturing and installing
the windows and windshields of cars are carried out in Indonesia, this is the TKDN.
Usually it is stated in percentage thus formulated: % of TKDN = (total cost of local content/amount of total cost) x 100%. Previously, calculating the TKDN was based on the selling price of product (price based), now it is based on cost of goods.
Based on reports the movement of TKDN percentage on the procurement
of goods and services for the upstream oil & gas sector is rising year by year.
This is based on the value of procurement in all contractors either those
in production or exploration status.

What about the manufacturing of goods such as green pipes, seamless pipes, round bar (stud bolt) and steel plate whose raw materials are not able to be produced by domestic industries?

Calculation of the TKDN percentage is just the same as the above formula.
For seamless line pipe, since there is no factory at all in Indonesia (even for
finishing), the TKDN is zero percent.
For seamless casing & tubing the green pipe is imported. As for heat treatment works and threading, they could be done in Indonesia. So, heat treatment and threading may be calculated as cost of local content in calculating TKDN.

Is there any ‘trick’ as to the data of the oil & gas industry in using local content?

From my experience working for the upstream oil & gas industry, the contractors obtain TKDN data as is and is in accordance with that offered by vendor.
But in the early process of procurement, for instance at the prequalification stage, contractors submit their requirements in advance regarding the minimum TKDN that may participate in a tender. Audit is made periodically on contractors in relation to the reached TKDN commitment in the process of procuring goods and services. Usually during discussions on work program & budget (WP&B) the WP&B team asks simultaneously fixes the committed TKDN that must be reached by the contractors in procuring goods and services.
Meanwhile, from the vendor’s side, since TKDN is calculated by self assessment,
it’s true that there are indications that the percentage of TKDN tends to be blown up. Because the bigger the TKDN the bigger the coefficient of preference acquired and thereby will affect the price of final evaluation after being normalized against TKDN.
To day, however, for TKDN whose value is 25 percent and over (for goods) a certificate from a related agency is required.

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