Ika Krismantari, Jakarta – Energy analysts have called on the government to issue clear-cut rules to ensure that the cost recovery system used in the country's oil and gas industry does not cause losses to the state.
Ryad Areshman Chairil, from the Center for Indonesian Energy and Resources Law, said the current cost recovery system stipulated in the contracts signed by oil and gas companies and the industry's upstream regulator, BPMigas, is based merely on a consensus between the two sides.
"The existing contracts only refer to generalities, which are open to differing interpretions and can lead to markups," Ryad said, pointing to items, such as personal expenses and transportation costs, that are unrelated to exploration and production, but which are often included in the calculation of the costs that are to be recovered.
Therefore, he urged the government to issue a special regulation in the form of a presidential or ministerial decree to set out in detail which costs could be recovered by oil and gas contractors, and also the assessment mechanisms for controlling such costs.
The Supreme Audit Agency (BPK) reported recently that it had found irregularities worth almost US$2 billion in the oil and gas exploration and production costs reported by BPMigas betweeen 2001 and 2005.
Another energy expert, Kurtubi, said that oil and gas contractors tended to markup their spending in order to get higher refunds not only because the system was too general, but also due to lack of control by the government. He said that the recovery costs repaid by the government to oil block contractors in recent years had continued to incresese despite the decline in the country's oil production.
Figures from the Energy and Mineral Resources Ministry show that the amounts being paid out by the goverment under the cost recovery system surged to $9 billion in 2006 from $7.63 billion in 2005, even though the output declined during that period to 1.04 million barrels per day from 1.06 million barrels per day.
Under a production sharing contract, an oil producer normally receives 15 percent of net production (total output after the deduction of exploration and production costs). The government gets the remaining 85 percent.
This arrangement is quite popular among oil and gas companies as they can recoup all of their spending on exploration and production work.
Separatedly, BPMigas said that Indonesia was relying on 22 oil blocks so as to meet the country's oil production target of 1.034 million barrels per day in 2008.
BPMigas chairman Kardaya Warnika said as quoted by Antara that of the total 22 oil blocks, 10 were new blocks.
Those 10 new blocks included North Duri and Kotabatak in South Sumatra, Bekapai, Handil and Tunu 11A in East Kalimantan, Pulau Gading and Sungai Kenawang in Jambi, and Tangguh in Papua.
Meanwhile, the other 12 blocks included Ujung Pangkah in East Java, Tunu 12 in East Kalimantan and Balam South in South Sumatra.
The government has set a target of a 30 percent increase in the country's oil production to 1.3 million barrels per day by 2009. This year, the oil output is expected to reach to 950,000 barrels per day from the previous target of 1 million barrels per day.