Publications

Indonesia has been blessed with extensive oil and gas resources. Its oil production peaked at nearly 1.7 MMBOPD in 1977, and since then has gradually declined. Coupled with steadily growing demand, Indonesia has now become a net importer of oil. To meet future energy demands, the Government of Indonesia (GoI) is promoting development of non-oil sources such as natural gas, coal, and Coal Bed Methane (CBM). It also encourages the application of Enhanced Oil Recovery methods (EOR) to slow the decline in oil production. These “new sectors” of CBM and EOR are characterized by higher risks and lower margins than conventional oil and gas development. So to attract more activity, the GoI may consider providing fiscal incentives. They can be removed later when the sectors grow and becomes self-sustaining. This paper will present the following fiscal incentive options to improve project economics: 1. Floating Equity Split Using a R-factor Formula 2. Flexibility in applying the Tax Holiday 3. Contract Extension in Exploration and Exploitation Period 4. Provision of Investment Credit.