Publications

The long experience of oil and gas undertakings in Indonesia has failed to bring the country into a condition of self-reliance. Investment, the basic foundation of the undertaking, is wholly surrendered to the hands of contractors, while government is waiting lazily for revenue sharing. In article 19 of the new oil and gas law, Law No. 22/2001, that role of government is limited solely to conducting general surveys for contract area preparation. Exploration and exploitation are carried out by the contractors.Since oil and gas are considered strategic and belong to the people of Indonesia, the role of government should be extended to cover exploration. However, the huge capital requirement in this upstream activity discourages government activity. Depletion premium is a source of funding, which could be collected by government to finance exploration.This paper endeavors to propose an alternative form of cooperation contract based on Depletion Premium as part of the revenue sharing scheme. An illustration using a hypothetical case is provided for analysis to come up with conclusions and recommendations. The Depletion Premium is found to be governments Cost Recovery when government conducts the exploration. The bargaining position of government will be stronger vis-à-vis contractors, and policy of self-reliance can be steadily developed. Indeed government should consider appointing Business Enterprises to carry out exploration through the PSO (public service obligation) mechanism.Keywords: Depletion Premium, oil and gas cooperation contract.