T

he Indonesian Petroleum Association (IPA), a powerful grouping of oil and gas companies operating in Indonesia, has suggested legislators to establish an arbitrary institution to settle cost recovery disputes between oil and gas producers with upstream oil and gas regulator BPMigas.

Cost recovery is a scheme allowing oil and gas contractors to claim their investment spending after the projects enter the production stage. This mechanism is trademark of Indonesian-tailored production sharing contract (PSC).

IPA executive director Dipnala Tamzil said in Jakarta on Wednesday that dispute in cost recovery calculation sometime occurred between BPMigas and the contractors.

“What happens now is that BPMigas’ decision [on the recoverable cost] is final. Sometimes we agree with that, but at other times we don’t. We think an arbitrary institution will be able to settle the difference,” Dipnala said during a hearing on the revision of the oil and gas law with legislators.

Dipnala said the arbiter did not necessarily have to be an international arbitrary institution. “It could be a local institution as long as it is independent,” he said.

He added that, without an arbitrary institution, cost recovery claims would remain backlogged at BPMigas for lengthy periods, which would be “harmful for everybody”.

BPMigas chairman R. Priyono acknowledged that BPMigas and contractors often came to different results when calculating recoverable costs. “Differences in the cost recovery calculation occurs frequently, as we are assigned by the government to ensure all operations run smoothly, are efficient and follow all the regulations,” Priyono said.

He refused to comment on the proposal for the establishment of the arbitrary institution.

Legislators from the House of Representatives’ Commission VII overseeing energy and mineral resources held a hearing to mull the revision of the 2001 Oil and Gas Law. The revision was mandated by a House inquiry team in September last year. The inquiry team was formed in June 2008 to respond to the government policy of raising subsidized fuel prices.

Commission VII chairman Teuku Riefky Harsya said the recommendation asked the commission to revise the law within one year of being issued. However, he added, with the current progress, the revision process would likely take a lot longer.

The IPA said it neither supported nor opposed the revision, adding that, even if the revision is made, there should not be any major changes.

“The current legislations have been conducive for the industry.
We believe that any modification should be modest,” IPA chairman Ron Aston said.

Energy analyst from ReforMiner Institute Pri Agung Rakhmanto recommended the revised law to eliminate BPMigas from its position as the upstream regulator.