Letter: Missing oil production

Tue, 07/15/2008 10:36 AM  |  Reader's Forum

The Jakarta Post reported July 10 (p. 1) the Corruption Eradication Commission (KPK) is looking into the alleged misappropriation by BP Migas of oil and gas revenues of up to Rp 200 trillion (US$21.74 million).

The exposure of possible massive wrongdoing at BP Migas could hardly come at a worse time for the government given its current attempts to get oil companies to accept much tougher rules on cost recovery which will force oil companies to bear more of the burden of exploration and development costs.

The rationale for this tougher approach to cost recovery is that the government needs to derive a greater share of the overall benefit of domestic oil production to help overcome the spiraling budget deficit caused in part by the rising cost of the fuel subsidy.

However, oil companies may question this rationale if in fact BP Migas is misappropriating substantial amounts of the country's oil revenues.

Oil companies might well say, with some justification, that they are being asked to accept responsibility for overcoming the government's budgetary problems when the actual cause is not excessive cost recovery by the private sector but rather the wholesale underreporting and misappropriation of oil revenue by the public sector. Why should the oil companies be made to pay for BP Migas' possible wrongdoing?

If BP Migas' suspected wrongdoing proves true, then surely the focus of the government should not be tougher cost recovery rules. Instead, the government should focus on ensuring BP Migas properly accounts for its actual share of the country's oil production.

Under these circumstances, tougher cost recovery rules appear to allow the government to avoid the more difficult political issue of cleaning up BP Migas. It is hardly appropriate that reduced private sector oil exploration and development cost recovery be used as a means to offset the impact of public sector oil revenue misappropriation.

WILLIAM A. SULLIVAN
Jakarta

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