Jakarta, Petrominer — The government of Indonesia plans to make a new scheme of contract for the upstream sector of oil and gas in the country. The aim is not to restrict the existing production sharing contracts (PSCs). The change of scheme of contract is aimed to increase the activities of oil and gas exploration and production throughout the country.
“The regulation is currently prepared. The aim is to increase the activities of exploration for oil and gas in the country,” said Director for the Upstream Sector of Oil and Gas Djoko Siswanto.
How will the scheme be applied and what will the responses be from the stakeholders? Here are excerpts of interview between Djoko Siswanto and Petrominer during the 4th United States-Indonesia Energy Investment Roundtable in Jakarta early in August 2015:
Can you explain about this new scheme?
The new scheme of contract as proposed by the government of Indonesia will be based on gross split. This scheme has many similarities with that under the concept of royalties and taxes and the Government will no longer have to reimburse the oil and gas operating costs that are popularly known as recovery costs. Instead, at the beginning of the project of oil and gas the large portion of production will be owned by investors and it is for the replacement of the initial investment. After the total of investment has already been returned, the greater portion of production will go to the Government.
Under the scheme of gross split investors will automatically make efficiencies because the whole portion will become the initial cost for the investors. In the progress the greater split will go to the State. It shall be mandatory because it has to be in compliance with Article 33 of the 1945 Constitution.
Has such a scheme been applied abroad?
The system of gross-split contract has been widely applied in many countries, for example is Australia. In this country under such a system the management of oil and gas at Deep Ocean can be progressive.
For Indonesia, hopefully it can increase and attract more investments to the sector of oil and gas.
Does it mean that the Cost Recovery will be removed?
No. Later on a choice can be made by any PSC, especially for the new block. It’s up to the contractor to apply any of the available systems. Perhaps some contractors still prefer PSCs because the costs of recovery (operational costs) can be reimbursed by the Government. With more options it is expected that more investors will be attracted. The point is that we must be flexible and the most important thing is that it has to be undoubtedly efficient.
What about the response from the Special Work Unit on Oil and Gas (SKK Migas)?
The Special Work Unit on Oil and Gas (SKK Migas) has proposed a PSC sliding-scale system. This scheme will also be included in the new Ministerial Decree. The point is that we have the same spirit. From year to year the complaint of investors is only about the 85:15 split that is considered unfair and unattractive. We will try to find the best solution to the scheme.
What will the legal status of this gross-split scheme be?
We are currently preparing all the legal aspects so that it can eventually be signed by the Minister. It will be in form of implementing regulation of the Ministerial Decree that can also accommodate new fiscal term. Hopefully at the end of this month it can be concluded.
Has the Minister already been informed about this issue?
I have already informed about it and explained that under this gross-split system our energy resilience can be enhanced. There will be multiplier effects following the POD of oil and gas, and every aspect including that of taxation will be on the rise. With the exploration activities in progress, we will eventually obtain a variety of seismic data. With more and more seismic data it will be easier for investors to operate in this country.
If in a region there has yet to be any activity, or even a minimal seismic survey how can the investors be attracted? Data of oil and gas will be very important for the country. With more and more data it will be easier for us to make evaluation and decisions.
Why will it be held at end of this month? Is there a momentum?
Yes. We will make an offer for new oil and gas working areas in August 2015. Of the offer the investors will be allowed to choose the system they want.
SKK Migas Head Amien said, it could be possible that the issuance of Ministerial Decree will be in coincidence with the offer of working areas (WKs). Such a situation will be good and there might be no delays. It is the right time to make changes. If necessary we can get out of our traditional cost structure. This is the right time to review for all the possibilities.
Isn’t it contrary to the Oil and Gas Law?
A scheme of contract that is excluded from PSC system is actually allowed under Law No. 22 Year 2001 on Oil and Gas. Point 19 of Article 1 of Chapter I cites about “Production Sharing Contract or Contract of Cooperation that shall be favorable to the State.”
It means that we are allowed to have options for other more lucrative systems of contracts. Regrettably there is also a government regulation that has so far made us remain under the system of PSC. But, will our country remain in this current situation of oil and gas without any favorable change for the good sake of the State?
Does it mean that you are alone in proposing such a new scheme?
Certainly not. As we know this new scheme of oil and gas contract has previously been proposed by Minister of Energy and Mineral Resources Sudirman Said during the 39th IPA Convention and Exhibition at Jakarta Convention Centre in May 2015. Some personnel of IPA have also discussed about this issue. Also, in the event of the 4th United States-Indonesia Energy Investment Roundtable the Head of SKK Migas has already talked about this new scheme. So we in fact have already started the socialization of it.
When you were in the Oil and Gas Reform Team I had ever asked about it. But there had been various debates as well as pros and cons over the issue. What is your comment?
Yes at the time there had actually been pros and cons in an equal proportion over the issue of the new scheme. Many of them said there had been no problem about the system of costs recovery. But many of them had also considered that the oil and gas mafia had made a good use of the gray areas under the system of recovery costs. Thank God now everything is already explicitly understood.
Even the Minister has ever said that to increase the production there is a necessity to change the system of recovery costs. Even now IPA is asking me to change the scheme of system. IPA has also suggested for the possibility of using a gross-split system when drafting the new oil and gas law. Because, he said, it will be in line with the government’s plan to revise the oil and gas law and replace the contract system with the system of permit of undertakings.
Are you not afraid of any effort to criminalize this new policy?
I am aware of it. But I make it as a challenge. The important thing is that in the beginning we have good intention to adjust to all the basic and legal factors. I have met with the Head of Bareskrim and I explained that State’s money that is missing has to be returned to the State. I hope there will be no bad intention from some quarters to criminalize the good efforts of the governments to increase the investment in this country.
Does it mean that of the offer in August there will also be an implementation of a new system?
Correct. We will make a Direct Offer. It will be based on an online system that can minimize the direct contact with people. There should no longer be cases of practices of corruption, collusion and nepotism (KKN) by the participants and the members of the team of auction. We will revise the Ministerial Decree in regard of the auction and we will also be prepared for all the legal aspects in order not to be criminalized.
Regarding the openness for the data of auction, of course, we will sort out the confidential data for the State and there will also be data open for the public that will be put online. It can really improve the competence of oil and gas investments in this country.
What about the progress of the status of problematic PSCs?
The Government of Indonesia has threatened that there will be 13 oil and gas working areas to be terminated if the contractors for the operations in the areas remain reluctant to meet with the government in regard of the fulfillment of their respective commitments. The Government will terminate the PSCs after a second-time summon. But not all of the PSCs will be terminated at once. It will be case per case by considering the status of any of the work areas.
The 13 PSCs that have yet to fulfill the summon from the Government are: Amstelco Karapan PTE Ltd for WK of Karapan in Madura of East Java; East Bawean LTD affiliated with Doublebay Properties Ltd (BVI) for WK of East Bawean; Ecosse Energy Bengkulu PTY Ltd for WK of Bengkulu; Ecosse Energy Manokwari Ltd for WK of Manokawari; PT Sigma Energy Petrogas for WK of Enrekang; AED Rombebai BV for WK of Rombebai; and Inparol PTE Ltd for WK of Asmat. (W18)
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