Publications

Over the last 15 years, the Indonesian government has made significant changes to its Production Sharing Contract (PSC) fiscal system, including the implementation of the PSC Cost Recovery based on a POD and the PSC Gross Split for expiring PSC contracts. Despite criticism from investors for a perceived lack of profitability and concerns about potential negative impacts on the broader investment climate, there has been an absence of comprehensive research addressing whether expenditures (both capital and non-capital) for the working areas transitioning to the PSC Gross Split exceed those observed under the previous PSC Cost Recovery.

This research hypothesis is that expenditures under PSC Gross Split basis surpass those occurring under the PSC Cost Recovery basis. To assess this hypothesis, the study employs the Student’s T-Test at confidence levels of 95%. The analysis utilizes data on capital and non-capital expenditures for the two years preceding and following the transition to the new PSC.

The research findings indicate no significant difference of total expenditure spend in a working area after the transition to the new PSC. However, there is a significant increase in exploration expenditure in two consecutive years after the transition. This increase corresponds with the exploration commitment clause stated in the contract. In summary, the transition to PSC Gross Split has not proven effective in attracting additional investment during the analysis periods.