Regions demand bigger share of oil and gas revenue

Oil and gas producing regions have demanded an increase in revenue sharing (DBH) to enable local residents to enjoy more benefits from natural resources exploited from their land, the consultation forum for oil and gas producing regions (FKDB) says.

The prevailing law on the financial balance between central and regional governments, issued in 2004, stipulates that producing regions receive 15.5 percent of the central government’s revenue from oil exploration and 30.5 percent from gas.

The share of the central government and oil and gas contractors is 85 percent and 15 percent for oil, respectively, and 70 percent and 30 percent for natural gas, respectively.

Of the 15.5 percent received by the regions for oil, 3 percent goes to the provincial government, 6 percent to the producing region or city and 6 percent to other regions and cities in the province. The remaining 0.5 percent is allocated to education.

For the 30.5 percent share from gas, the provincial government receives 6 percent, the producing regional or city government 12 percent and other regions and cities 12 percent. The remaining 0.5 percent is also allocated to education.

The director executive of the FKDB, Muliana Sukardi, revealed that the regions wanted their share increased to 30 percent for oil and 50 percent for gas.

“In addition to building public infrastructure, the increase in shares is important for the regions to deal with the social and economical impacts of exploration and production activities,” he said at a press conference at upstream oil and gas regulator BPMigas’ premises on Thursday in Jakarta.

The regions have also demanded that the central government share signature bonuses and the first tranche petroleum (FTP) funds, which are currently kept by the central government. FTP is the oil and gas shared by the parties in a product sharing contract before cost recovery, whereas a signature bonus is a fee paid to the government by an exploration company upon signing a product sharing contract or a concession licence agreement.

If the demands are met, Muliana believes the number of non-technical delays and disruptions in oil and gas exploration and production would significantly decrease.

According to BPMigas, in 2011, the number of non-technical delays and disruptions — such as late permit issuance, difficulties in land procurement and vandalism — reached 1,234, up steeply from only 756 in 2010. In 2008, the number was 471.

BPMigas deputy chairman for operations Rudi Rubiandini said the regions’ requests were understandable. However, he had a different proposal.

“I think it would be better if the percentage of shares for the regions was 30 percent for both oil and gas because the two commodities come from the same wells and cost the same to recover,” he explained.

“Oil and gas are processed using the same equipment. The results become state revenue so I don’t think the share should be differentiated,” he added.

Rudi said the request concerning signature bonuses was a bit difficult to accept because the money was used to compensate for funds spent by the central government to collect data on the auctioned working areas.

BPMigas spokesperson Gde Pradnyana said his agency acknowledged the role of regional governments in managing oil and gas resources. He continued that assets that were no longer economical for big foreign companies or Pertamina would bring more benefits if they were given to regional enterprises.