T

he Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) is seeking an exemption from value-added tax imposed on the purchases of crude oil so that state-owned oil and gas company Pertamina will be able to buy more crude oil from local producers.

SKKMigas chief Amien Sunaryadi said an exemption from the tax, which is about 3 percent, would help Pertamina purchase crude from oil and gas firms in the country at a fair price.

According to Amien, oil and gas contractors, such as Chevron and ExxonMobil, are happy to sell their crude oil to Pertamina. However, as the crude oil is sold through their trading arms based in Singapore, Pertamina has to pay value-added tax for the purchases.

'€œBased on our tax regulations, if Pertamina purchases from the Chevron or Exxon [ExxonMobil] trading arm in Singapore, it should pay 3 percent in value-added tax imposed on imported goods,'€ he said, adding that for this reason, his office would formally ask for the exemption of the value-added tax in order to help Pertamina to reduce costs.

'€œTherefore, we are seeking an exemption from the Finance Ministry and Tax directorate general. We have been waiting for an appropriate time to formally file the request, because last month they were still struggling to meet the tax collection target,'€ he added.

Pertamina'€™s plan to purchase crude oil from contractors operating in the country is part of the government'€™s plan to use more locally produced crude oil to meet local fuel demand.

Under the current production sharing contract system, oil production is divided between the government and contractors that develop the projects. The government is normally entitled to 85 percent of oil production while contractors receive the remaining 15 percent. The contractors are free to sell their oil production anywhere, for example to the spot market or to their affiliated refinery networks worldwide.

Figures from the Energy and Mineral Resources Ministry'€™s oil and gas directorate general show that 111 million barrels of crude oil were shipped abroad in 2014, equal to around 38 percent of the total output of 290 million barrels.

Oil and gas director general IGN Wiratmaja Puja earlier said 400,000 barrel oil per day (bopd) produced from the domestic market were currently exported. Under the domestic utilization plan, the government is estimating around 200,000 bopd from the contractors'€™ share could be delivered to domestic refineries.

The plan, he said, could reduce imports and save approximately US$3.8 billion in foreign exchange transactions per year, thus helping to strengthen the rupiah.

Out of the potential 200,000 bopd, as many as 167,000 bopd from a number of domestic fields have been requested by Pertamina, according to SKKMigas deputy chief Zikrullah.