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Jakarta Post

Gross-split scheme still bone of contention

The government has yet to bring the House of Representatives to terms over its plan to replace the cost recovery scheme for the upstream oil and gas industry with the so-called gross-split sliding scale

Viriya P. Singgih (The Jakarta Post)
Jakarta
Wed, December 7, 2016

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Gross-split scheme still bone of contention

T

he government has yet to bring the House of Representatives to terms over its plan to replace the cost recovery scheme for the upstream oil and gas industry with the so-called gross-split sliding scale.

Under the cost recovery scheme, which was initially applied in 2010, the government is forced to reimburse various production costs to contractors with a vast range of variables such as the purchase of heavy equipment and enhanced oil recovery (EOR) to ramp up production.

Meanwhile, the gross-split sliding scale will let contractors decide by themselves about how they operate with no reimbursement scheme and just straightly split production with the government at the end of the road.

“However, we must be very careful as the gross-split scheme could make the government lose its entire grip as contractors will have greater freedom in their operations. It means we will no longer be able to intervene in terms of the management of the country’s natural resources,” Satya Widya Yudha, a member of House Commission VII overseeing energy, said recently.

Satya said such a mechanism would contradict Article 33 of the Constitution, which mandates state control over all natural resources. Hence, the government should not hastily implement the gross-split scheme just to attract more investors to the country, he added.

“So, it needs to be clear first. How much income can the country actually get from the new scheme? Is it really that profitable for us in the long run?” Satya went on.

Commission VII deputy chairman Mulyadi also saw eye-to-eye with Satya. He even called on the government to test the gross-split scheme with one project first, before fully implementing it in the future.

Last year, the government was forced to pay out $13.9 billion for cost recovery, exceeding the $12.86 billion in non-tax revenue obtained from the sector.

Bisman Bhaktiar, the executive director of the Center for Energy and Mining Law (Pushep), said the cost recovery scheme, indeed, had been seen as unattractive for investors, as the split ratio of government to contractor is 85:15 for oil and 70:30 for gas.

Hence, he said there had been some allegations that contractors could mark up their cost recovery report to get a better result in their top lines.

According to the Supreme Audit Agency (BPK) report, the contractors marked up cost recovery by Rp 3.9 trillion (US$293 million) last year, by adding many variables such as expatriation costs for foreign employees, thus reducing state revenue.

“So the real problem is in the control and supervision, while the gross-split scheme, on the contrary, will reduce the government’s ability to oversee such matters,” Bisman said.

Meanwhile, Energy and Mineral Resources Deputy Minister Arcandra Tahar disagreed with such criticism as he said all projects had to be observed case by case and the gross-split scheme would only bring more efficiency for all oil and gas cooperation contract holders (KKKS).

Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) head Amien Sunaryadi confirmed the gross-split scheme would be first implemented in the extension of production sharing contract (PSC) for Offshore Northwest Java (ONWJ).

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