The sustainability of national oil and natural gas production is increasingly determined by the ability of fiscal policy to recognize the characteristics of the upstream oil and gas industry, which is inherently high-risk and long-term in nature. Amid declining production trends and the dominance of mature fields, fiscal policy can no longer be positioned merely as a state revenue instrument. Instead, it must function as a strategic signal that shapes investment, exploration, and field development decisions.

The upstream oil and gas industry operates on long cycles, from exploration to commercial production, often spanning decades. In this context, the stability and credibility of fiscal policy become key factors for investors in assessing project viability. When policies change too frequently or fail to provide long-term certainty, project risks increase and investment interest tends to be restrained.

The Chairman of the Indonesian Association of Oil, Gas, and Renewable Energy Legal Practitioners (APHMET), Didik Sasono Setyadi, views the approach to oil and gas fiscal policy as something that must be placed within a broader strategic framework. According to him, fiscal policy should not be narrowly interpreted as an issue of taxation and state revenue alone, but rather understood as part of national economic policy that influences the overall investment climate.

“When we talk about fiscal policy, it is not merely about taxes or state revenue. Fiscal policy is a policy signal. Investors want certainty that commitments agreed upon at the outset will not change drastically midway, especially in an industry like oil and gas where investment cycles are extremely long,” Didik said.

Structural challenges in the upstream oil and gas sector further underscore the urgency of adaptive fiscal policy. Based on presentations by the Ministry of Energy and Mineral Resources (ESDM) and SKK Migas, the majority of current national oil and gas production comes from mature fields and aging assets. This condition makes production growth increasingly dependent on optimizing existing fields through continued investment, technological application, and cost efficiency, rather than solely on the discovery of new low-cost fields.

In such circumstances, fiscal policy design has a direct impact on project economics. Didik highlighted several issues that frequently concern industry players, ranging from certainty in contract extensions, flexibility in production-sharing schemes, to cost recovery arrangements through mechanisms such as ring fencing and assume and discharge models. These issues, he noted, often play a more decisive role in investment decisions than short-term fiscal incentives.

“We cannot expect different outcomes if the approach remains the same while industry conditions have clearly changed. Production is declining, new reserves are increasingly difficult to find, and exploration risks are rising. Fiscal policy must have the courage to adjust to this reality,” he explained.

Exploration risks in frontier areas present additional challenges. Regions with large reserve potential typically involve high geological uncertainty and require significant upfront investment. Without flexible and competitive fiscal policies, such exploration projects struggle to attract investor interest, particularly amid intense global competition among oil- and gas-producing countries.

Didik emphasized that the balance between state interests and investment sustainability must be articulated more clearly within the public policy framework. State interests, he argued, should not be narrowly defined in terms of production split alone, but should be viewed in terms of long-term benefits, including increased production, reduced imports, and strengthened national energy security.

“The question is simple: what does the state need most right now? A larger production split, or higher production levels that can reduce imports? All of this can be calculated economically, and the results should be translated into a clear policy umbrella so that decision-makers on the ground do not hesitate,” he said.

Echoing this view, A. Rinto Pudyantoro, a lecturer and energy economist who has long been active in studying fiscal policy and governance in the oil and gas sector, expressed a similar perspective. Rinto assessed that the main challenge of oil and gas fiscal policy lies in its misalignment with the characteristics of the upstream industry, which is high-risk, capital-intensive, and long-term.

“Oil and gas are often positioned primarily as a source of state revenue, whereas their strategic dimension as a foundation of energy security has not been fully reflected,” Rinto said.

According to him, a fiscal approach that remains overly focused on optimizing short-term revenue risks neglecting the strategic role of oil and gas in maintaining national energy security. In this framework, fiscal policy should be positioned as a risk-sharing instrument between the state and investors, rather than merely as a revenue collection tool. Without a consistent and predictable fiscal framework, investment decisions, particularly for high-risk exploration and field development projects, are likely to be delayed.

“If natural gas is to be viewed as one of the important pillars supporting the energy transition, then the government inevitably needs to provide swift support for the upstream gas sector, because upstream activities are high risk and high cost by nature,” Rinto said.

Rinto also stressed that upstream oil and gas investment generates economic impacts far beyond direct contributions to state revenue. Upstream activities drive significant multiplier effects through job creation, the strengthening of supporting industries, and increased economic activity in operational regions. Therefore, the success of fiscal policy should not be measured solely by the size of production splits or tax revenues received by the state, but by its ability to sustain production and reduce dependence on energy imports.

“The greatest impact comes from the extraordinary multiplier effect of oil and gas investment, not merely from lifting volumes,” he emphasized.

In this context, fiscal policy certainty also serves as protection for policymakers and implementers in the field. A clear and consistent regulatory framework minimizes excessive interpretation while providing confidence that decisions taken are aligned with long-term national interests.

The role of the Indonesian Petroleum Association (IPA) becomes particularly relevant in encouraging policy dialogue grounded in data and industry best practices. As a forum for upstream oil and gas stakeholders, IPA is positioned as a strategic partner to the government in conveying industry perspectives, without replacing the role of regulators. Constructive dialogue is expected to enrich the formulation of fiscal policies so that they remain competitive and aligned with the technical and economic challenges of the upstream sector.

These perspectives underscore that increasing national oil and gas production cannot be separated from the quality of the fiscal policies that accompany it. Consistent, credible, and adaptive fiscal policies not only support investment sustainability, but also serve as a critical foundation for strengthening national energy security amid industry dynamics and the global energy transition.