Publications

One of currently important issues in oil and gas industry is increasing cost recovery from year to year. Cost recovery increases while production declines: some are of the opinion that oil and gas contractors run petroleum operations inefficiently and thus the Government of Indonesia, as a mineral interest holder, suffers consequent loss from their oil and gas activities. The existing PSC model contributes many benefits to both government and contractors. From a contractors point of view, the existing PSC provides the cost assurance that all petroleum operation expenditures will be recovered after oil/gas is produced. The cost assurance tends to reduce contractors cost awareness and cost control, as well as tending to allow a contractor to run an inefficient petroleum operation: they simply assume that all petroleum expenditures will be recovered. An alternative solution would be to develop a new fiscal system that would meet the objective to optimize petroleum income to government - as the mineral rights holder - as well as to optimize contractor investment return as the petroleum capital provider and risk bearer. In order to accomplish this, the government must design a fiscal system that provides a fair return to both the state and to industry, while avoiding undue speculation, limiting undue administrative burdens, providing flexibility, creating healthy competition and boosting overall market efficiency. The design of an efficient fiscal system must take into consideration political and geological risks as well as potential rewards. Developing an alternative PSC Non Cost Recovery Model (PSC NCR model) is expected to overcome the increasing cost recovery problem and, on the other hand, still promise economic returns to government and contractor. According to Oil and Gas Law 22/2001 Article 1, No 19, it is clearly stated that a Cooperation Contract is a production-sharing contract or another Cooperation Contract most favorable to the Government, and the result will be fully beneficial to the national welfare. Of course, the Cooperation Contract is also attractive to contractors / new investors as capital providers and petroleum risk bearers. PSC criteria, as stated in Oil and Gas Law 22/2001 Article 6 No 19 include provisions that: The Government still holds mineral rights up to the point of delivery Control of petroleum operations management is the responsibility of BPMIGAS The Contractor provides the capital and bears all petroleum risks. The New PSC Non Cost Recovery is also expected to reduce and simplify the bureaucracy handling the petroleum operation approval process.