House approves increase in cost recovery fund to $15.5b

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Lawmakers announced on Friday that next year’s cost recovery fund would be set at US$15.5 billion, a $340 million increase from this year’s $15.16 billion.

The cost recovery fund is a scheme that allows oil and gas contractors to claim their investment costs after projects enter the production stage.

The mechanism is a trademark of the Indonesian-tailored production sharing contract (PSC).

Satya W. Yudha, a member of the House of Representatives’ Commission VII overseeing energy and natural mineral resources, said that the House had agreed with the government to the increase in the amount of cost recovery.

“The new level of the cost recovery fund was set against the value of the oil and gas projects, which are run and owned by production sharing contract holders [KKKS], in addition to their operational costs,” he said on Friday.

The cost recovery decision was made during a session held at the House earlier this week, Satya, who is a member of the budgetary body said.

According to the state budget, in 2012 the cost recovery fund was distributed to several posts including $1.116 billion for exploration stage expenses, $3.349 billion for development stage expenses, $7.657 billion for maintenance expenses and $1.22 billion for administration expenses.

Satya said along with the increase in the cost recovery fund the House asked the government to further increase the state’s revenue from the oil and gas sector.

He said the House and the government have agreed to set a target of $1 billion for the state revenue increase.

“We expect an increase in state revenue through negotiations between the government and the KKKS, for both new and expiring contracts,” he said.

He pinpointed one of the contract negotiations that had been expected to boost state revenue as the negotiation to increase the price of natural gas produced at BP’s Tangguh gas-rich field in West Papua.

Currently, the price of liquefied natural gas (LNG) from Tangguh, which is exported to Fujian, China, is set at $3.35 per British thermal unit (mmbtu).

The price for Tangguh’s gas is lower than the natural gas produced at the Bontang refinery, the state-run oil and gas firm Pertamina’s East Kalimantan operation, which is set at US$15 per mmbtu.

If compared with the natural gas prices in the US’ domestic market, which is set at $5 per mmbtu, Tangguh’s gas price was still cheaper.

The government has formed a team, led by Coordinating Economic Minister Hatta Rajasa, to handle the contract negotiations. The team expects to complete its tenure in 2013.

Deputy Energy and Mineral Resources Minister Rudi Rubiandini told reporters in Jakarta on Friday that the ministry would try to comply with the House’s expectations.

“We will strive to fulfill it [to increase the state revenue from oil and gas sector],” he said.

This year the state budget set the state revenue target, from the oil and gas sector, to be $33.48 billion.

Meanwhile, oil and gas regulator BPMigas has said that it was optimistic to gain over $36.83 billion for this year’s oil and gas state revenue.

— JP/Rabby Pramudatama