Oil and Gas Contractors demand tax breaks
Oil and gas firms in Indonesia, a former member of the Organization of the Petroleum Exporting Countries (OPEC), urged the government on Thursday to remove land and building taxes for offshore exploration across the archipelago.
Indonesian Petroleum Association (IPA) chairman, Lukman Mahfoedz, said in Jakarta the current fiscal policy on taxes for contractors in the exploration stage was not in line with Indonesia’s goal of boosting oil and gas exploration.
“This is a major concern for petrol companies in the upstream sector. The amount of land and building taxes is sometimes higher than the exploration budget the firms must spend in their respective blocks,” he said in an e-mail.
In July this year, the Taxation Directorate General billed 15 oil and gas contractors, who were exploring 20 offshore blocks, in land and building taxes amounting to Rp 2.6 trillion (US$232.08 million), or around Rp 40 billion-Rp 190 billion per block.
The tax office, according to Lukman, obligated oil and gas contractors to pay off land and
building taxes by taking into account their whole working area even though contractors in general only explored a small portion of the region.
“The high amount of taxes, in addition to the fact there’s no guarantee that oil and gas companies will find commercial oil and gas reserves following exploration activities, will further burden the contractors,” he said.
At least 12 oil and gas petroleum companies failed to find new, profitable hydrocarbon reserves in their exploration activities between 2009 and 2012, even though they had spent a total of Rp 20 trillion.
Earlier this year, US-based firms ExxonMobil, Marathon, Hess and ConocoPhillips as well as Netherlands-based Tately NV all decided to return their blocks in the Makassar Strait after deeming the basins uneconomic.
Texas-based Anadarko, meanwhile, has sold its assets in Indonesia to the country’s state-owned oil and gas firm Pertamina, hinting it was ready to leave the country.
Lukman, who is also the president director of PT Medco Energi Internasional, the country’s biggest publicly listed oil and gas firm by assets, said Indonesia only recorded a 52 percent replacement ratio for its hydrocarbon reserves.
“This means that new hydrocarbon reserves unearthed in 2012 would only cover half the oil production in that year,” he said.
With that, he said, the oil and gas players in the country urged the government to reconsider implementing land and building taxes for exploration activities, adding that a favorable investment climate was an important factor for petrol companies in their business.
