Alfian, Jakarta – Now the PT Medco E&P Indonesia contract in the Block A gas field in East Aceh will be extended, the local authority wants a new state regulation to clarify the 70:30 revenue split between local and central administrations.
Aceh's deputy governor Muhammad Nazar said that the Law on Aceh Governance stipulated the local administration has the rights to 70 percent of the government's revenue from oil and gas produced in the country's westernmost province, but a supporting regulation is still needed to validate the split.
"Now, we need a derivative regulation stipulating detailed mechanisms for the 70:30 percent revenue split between Aceh's provincial government and the central government. This is very important to assure the Acehnese that the sector is managed in a transparent manner," Nazar told The Jakarta Post Saturday.
Natural resources-rich Aceh Province had been in conflict for more than 29 years in part because the protracted unfair revenue split in the revenue from the resources produced by the province. In 2005, the government and the Free Aceh Movement (GAM) signed the famous Helsinki peace agreement, ending the conflict, which had claimed thousands of lives.
The agreement stipulated that 70 percent of oil and gas revenue from Aceh would go to the province while the remaining 30 percent would be directed to the central government. This article now has been incorporated into the Law on Aceh Governance.
"Now, the 70:30 revenue split is no longer only a political commitment, but it has become a law of the Republic Indonesia and everyone must abide by it," Nazar said.
He added that the Aceh Provincial administration had been told by the Finance Ministry that as of 2007 the province had received 70 of the government's revenue from oil and gas sector.
"But, we are not involved in the calculations. We don't know how big the cost recovery spending is for instance? We are simply told that we have received 70 percent," said Nazar, adding that the awaited implementing regulation, which was due to be issued, was expected to help make the process more transparent in the future.
The cost recovery scheme is one by which central government reimburses some spent funds to oil and gas operators to help cover agreed and eligible expenditure during the exploration stage in a given block. Eligible costs can be recovered by the company or consortium holding the concession for exploration and development. This scheme is an incentive to attract investment into the expensive upstream oil and gas sector.
According to Nazar, Aceh last year received about Rp 2 trillion from oil and gas.
The development of the huge Block A gas field is very important for the economic development of the province as the production from the Arun gas field, operated by ExxonMobil, has been declining due to the aging of the oil and gas fields concerned.
Block A contains an estimated 120 million standard cubic feet of gas per day (MMSCFD) with Medco E&P Indonesia holding a 41.67 percent participating interest in the block.
Medco partners with Premier Oil Sumatera (North) BV and Japex Block A Ltd which hold participating interests of 41.67 percent and 16.67 percent, respectively.
The contractors have finished the exploration stage and are now ready to move forward with the development stage. But, they are still waiting for the government approval for the extension of the contract which will expire by 2011, although they are now assured this will happen.
Energy and Mineral Resources Minister Purnomo Yusgiantoro said the Block A contract extension was a government priority.
"This is one of our priorities, because the block will supply gas for PT Pupuk Iskandar Muda (a local fertilizer producer)," he said last week.
Upstream oil and gas regulator BPMigas confirmed that the block will begin production in the third quarter of 2010.