Amahl S. Azwar
The Jakarta Post
Publication Date : 05-07-2013
In a move to attract more investors into the upstream sector, Indonesia planned to give oil and gas companies a bigger share of upcoming production-sharing contracts (PSC), a top official has said.
Upstream oil and gas regulatory special task force SKKMigas head Rudi Rubiandini said on Thursday that the upstream regulator would soon submit the new scheme to the government pending further internal discussions on the details.
“While there are many ways to create an encouraging investment climate, the [new production-sharing scheme] can be the tool to introduce a better climate and encourage more major players to return to Indonesia,” he said in an interview.
As stipulated in the 2001 Oil and Gas Law, the split between the central government and oil and gas contractors is 85 per cent and 15 per cent, respectively, for oil production, and 70 per cent and 30 per cent for natural gas.
Currently, Indonesia produces 830,000 barrels per day (bpd) of crude oil, of which 30 per cent to 40 per cent is exported. This production volume is much lower than peak production of 1.6 million bpd in 1995, due to aging fields.
With its current oil consumption of around 1.36 million bpd, the country faces a tough job to meet domestic demand for fuel. Indonesia quit the Organisation of the Petroleum Exporting Countries (OPEC) in 2008 after becoming a net oil importer.
Rudi, previously the deputy energy and mineral resources minister, said a larger share for oil and gas contractors would lure more investors to Indonesia and eventually boost exploration activities to find more, profitable hydrocarbon resources.
Of the expected US$26.2 billion investment in the upstream oil and gas sector this year, only around 10 per cent or $2.7 billion will be spent by contractors on exploration to find new reserves.
The remaining investment will be allocated to maintenance and exploitation activities.
However, according to Rudi, the recommendation would need endorsement from the Energy and Mineral Resources Ministry as well as the Finance Ministry, citing that the scheme would lessen the state’s revenue from the sector.
The oil and gas sector contributes 7 per cent to Indonesia’s gross domestic product (GDP), more than 25 per cent to state revenues plus $16 billion of direct investment per year, according to data from the Indonesian Petroleum Association (IPA).
Separately, Finance Ministry fiscal agency head Bambang Brodjonegoro said other incentives besides revising the production split needed to be studied.
“We need to consider current trends, practices implemented by other countries as well as state sovereignty,” he said. It is not the first time the government has mulled a plan to give oil and gas companies a bigger slice of the pie.
In 2004, under the leadership of president Megawati Soekarnoputri, there was a plan to revise the production split between the government and oil and gas contractors, but the plan was never implemented.
At the time, then energy minister Purnomo Yusgiantoro, now defence minister, proposed that the production split for oil be changed to 80:20 or 75:25 from 85:15, and the split for gas to 60:40 or 55:45 from 70:30.