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Gross split scheme to stay — with slight improvements
Arcandra Tahar (seto wardhana)The government has said the controversial gross split scheme in oil and gas contracts will not be retracted because it is attracting oil and gas investments in Indonesia, although the tax policy needs to be improved
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Arcandra Tahar (seto wardhana)
The government has said the controversial gross split scheme in oil and gas contracts will not be retracted because it is attracting oil and gas investments in Indonesia, although the tax policy needs to be improved.
Deputy Energy and Mineral Resources Minister Arcandra Tahar said instead of annulling the gross split scheme, the government was in the process of discussing land and building tax (PBB) incentives in oil and gas contracts in a bid to lure more investors.
“We are grateful that support for the gross split scheme keeps coming and getting bigger […] Several existing oil and gas contractors are willing to alter their contracts even before they end.”
He added that up to 37 oil and gas contracts were using gross split schemes.
“The gross split [scheme] won’t be reviewed further; we will only improve the tax aspect. We are currently negotiating potential land and buildings tax relief with the Finance Ministry,” Arcandra said.
The government has set tax incentives for oil and gas contractors that use gross split schemes by omitting all taxes during the exploration phase until the first oil production. After this, indirect taxes will be imposed, which would then be compensated through a split adjustment.
The PBB had become one of the obstacles for state energy holding company Pertamina’s upstream activities, according to Iceu Cahyani, the vice president for planning project and risk management at Pertamina Hulu Energi.
“We also have the new cost of the PBB that was previously reimbursed [through the cost recovery scheme],” she said.
The cost recovery scheme, which allows daily operational costs and other investment to be reimbursed by the government, was replaced by the gross split scheme in January 2017.
The gross split scheme, which omits the hassle of cost calculations between oil and gas contractors and the government, was the most efficient and simplest type of production sharing contract, the ministry claimed.
“Italian energy firm Eni S.p.A told me that it decided to alter its contract to avoid a long discussion on cost with the government on the latter’s gas project in Merakes field,” Arcandra said.
His statement came after global energy think tank Wood Mackenzie released the 2018 fiscal petroleum fiscal system review last week, which stated that the Indonesian government’s new oil and gas contract system was “lukewarm, at best”.
Wood Mackenzie research director Andrew Harwood told The Jakarta Post recently that lukewarm responses from investors were based on Indonesia’s acreage offerings last year.
“[…] 13 new exploration blocks were awarded, which is encouraging. But much more is needed — only US$81 million of investment and three firm wells were committed across these blocks,” he said.
Andrew also accentuated the limited interest from oil and gas giants, with the majority of new blocks being awarded to existing players in Indonesia or new startup companies with limited experience.
The government has set a moderate investment target for the upstream oil and gas sector this year at $14.79 billion or 5.64 percent higher than last year’s target of $14 billion.
