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usiness groups have called on the government to deliver on its promise to provide them with compensation over indirect taxes paid in the production stage by upstream oil and gas contractors operating under the new gross-split mechanism.

President Joko “Jokowi” Widodo’s administration issued Government Regulation (PP) No. 53/2017 on tax treatment for gross-split contractors on Dec. 28, nearly a year after the new mechanism was first introduced on Jan. 16, 2017.

Prior to the issuance of the tax regulation, Deputy Energy and Mineral Resources Minister Arcandra Tahar repeatedly said indirect taxes, including value-added tax (PPN) and luxury tax (PPnBM), paid by contractors during a production stage would be compensated with “additional split” at an equivalent value.

However, such a stipulation has yet to be outlined under the regulation. Commenting on the matter, Arcandra said last Friday the incentive would be introduced in the revision of Energy and Mineral Resources Ministerial Decree No. 52/2017 on gross-split mechanisms.

“The stipulation about the additional split was very important. Such an incentive would make PP No. 53/2017 comparable to PP No. 27/2017 [on cost recovery schemes],” Indonesian Petroleum Association (IPA) executive director Marjolijn Wajong told The Jakarta Post on Tuesday.

“That was why we were still waiting for the ministry to outline the additional split in [the revision of] the decree.”

Firlie Ganinduto, head of the permanent committee for energy, oil and gas regulations at the Indonesian Chamber of Commerce and Industry (Kadin), echoed Marjolijn’s sentiment, saying that an additional incentive would boost the economic feasibility of upstream gross-split projects.

“From an economic point of view, the gross-split scheme was still deemed unappealing by many investors. So we were still hoping that the ministry could soon provide additional incentives to make the scheme more attractive,” Firlie told the Post.

The gross-split scheme requires investors to pay exploration and production costs instead of relying on the government’s reimbursement as seen under the former cost recovery scheme.

In the new scheme, the split between the government and contractors moves up and down depending on the block’s characteristics, including the location, reservoir depth, amount of carbon dioxide, use of local industrial content and production stage.

The scheme also includes a progressive split that takes global oil prices into account.

These variables will be added or subtracted from the base calculation, which the new regulation has set to at least 43 percent for contractors of oil projects and at least 48 percent for gas projects.

PP No. 53/2017 provides several incentives for gross-split contractors. For instance, contractors are exempt from the obligation to pay import duties, PPN and PPnBM during exploration and exploitation phases until the first oil or gas is produced. Furthermore, there is a 100 percent land and building tax (PBB) reduction in a contractor’s notification of tax due.

In using and sharing state facilities, contractors will not have to pay PPN as well.

“Overall, the government has provided many fiscal incentives through the new tax regulation. Now we just have to wait and see how the industry responds to this,” said Komaidi Notonegoro, the executive director of Jakarta-based energy think tank ReforMiner Institute.

Meanwhile, the Energy and Mineral Resources Ministry closed the bid submission of its oil and gas auction just a day after the issuance of PP No. 53/2017.

The ministry said it had found bidders for five of 15 oil and gas working areas offered through the auction. The tender winners, which will be announced in February 2018, will then operate those areas using the gross-split mechanism.

Among the bidders are the United Arab Emirates-based Mubadala Petroleum, Spain’s Repsol Exploración SA, Indonesia’s PT Energi Mega Persada and a consortium consisting of the United Kingdom-based Premier Oil Far East, Mubadala Petroleum and Singapore’s Kris Energy.