Wed, 27 Aug 2008
Alfian, The Jakarta Post, Jakarta

The government may delay paying refunds owed to oil and gas contractors for exploration work and investment costs next year to help sustain the state budget, a minister says.

Energy and Mineral Resources Minister Purnomo Yusgiantoro on Thursday urged oil and gas companies to sincerely accept the plan in recognition of the country's struggle to cope with higher global oil prices.

He said the plan was a realization of President Susilo Bambang Yudhoyono's plea for companies that have booked hefty windfall profits from soaring oil prices to "share the pain" with the country.

"We are not going to evade paying the refund. We are just delaying it until the following year, and not all producers will be implicated in the policy," he said.

The government has estimated a state budget deficit of Rp 99.6 trillion (US$10.9 billion), or 1.9 percent of gross domestic product (GDP), for 2009. The figure is higher than this year's Rp 90.6 trillion deficit, or 1.9 percent of GDP.

To offset the deficit, the government is expected to squeeze more revenue from the oil and gas sector.

Last year, refunds paid to oil and gas contractors reached US$8.98 billion, and the figure is expected to increase to more than $10 billion this year.

The refund policy, known as the cost recovery system, states that expenses incurred by oil and gas contractors on exploration activities will be reimbursed by the government when production begins at the surveyed site.

The system was designed as an incentive to attract investors to develop the country's oil and gas reserves, but a lack of transparency and cases of alleged abuse have drawn much public criticism.

Chairman of upstream oil and gas regulator BPMigas Raden Priyono said the plan to delay the payments would vary between contracts.

"The plan will probably impact 10 percent of contractors with production between 5,000 and 10,000 barrel per day (bpd), and up to 20 percent with production larger than 10,000 bpd."

"If we see that the state budget is safe, we will not continue with this plan. We also don't need to delay paying the refunds if we can meet the target of oil and gas production," Priyono said.

The country is targeting to produce 977,000 bpd this year, and 950,000 bpd next year.

President of the Indonesian Petroleum Association Roberto Lorato said oil and gas contractors had already "shared the pain" with the country by supplying oil domestically as stipulated in contracts.

"If the government has another measure, the industry is open to sit down and discuss the issue with the government," he said.

Director general of oil and gas at the energy ministry Evita H. Legowo said the government would reach a final decision on the plan at the end of this year.

"This is an option to reduce pressure on our state budget," she said.



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