Government rejects Riau's bid to control CPP block

JAKARTA (JP): The government has rejected Riau province's bid to own a majority stake in a joint venture which will manage and operate the Coastal Plain Pekanbaru (CPP) oil block after the current contract ends in August, a senior minister said on Monday.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the province would have a 10 percent stake in the planned joint venture while state-owned oil company Pertamina would have the other 90 percent, based on a presidential decree on the CPP block currently in draft.

"Our decision is final," the minister told reporters after consultation with the House of Representatives' Commission VIII, which among other things oversees mining and energy affairs.

He added that the decree was awaiting President Abdurrahman Wahid's signature.

If approved, the decree would end the lengthy debate over Riau's involvement in the operation of the oil block, which is now operated by PT Caltex Pacific Indonesia.

Caltex, a joint venture of American-based oil companies Chevron Corp. and Texaco Inc., is the country's largest oil producer, producing about 70,000 barrels of crude oil per day at the CPP oil block.

The government had agreed in 1999 the reappointment of Caltex and Pertamina to jointly operate the oil block but the decision was annuled after President Abdurrahman unexpectedly bowed to Riau's demand to take part in the management and operation of the oil block.

Riau demanded to have a 70 percent stake in the planned joint venture.

Compensation

Purnomo said, however, that the government would offer a number of incentives to the local province as compensation for "not being given the majority stake."

"There are four dispensation or compensation plans for Riau," Purnomo continued.

He said the government would, for example, agree on placing Riau natives in the management of the company operating the oil block.

"Secondly, we will allow Riau to sell its stake in the oil revenues," he said, referring to the province's 10 percent ownership.

Thirdly, he said, the government would grant Riau three oil fields in the province as a "training ground" to develop its oil and gas expertise.

"Which oil fields will be given to Riau, depends on further talks with Pertamina," he added. The fourth plan, according to the minister, requires oil companies in the province to improve their community development.

The government regulates the country's oil resources under so- called production-sharing contracts. Based on such contracts, oil companies receive only 15 percent of an oil block's entire production.

In the case of the CPP oil block, the 15 percent share of its production will go to the planned joint venture and the other 85 percent to central government.

Of the 85 percent, the central government receives 85 percent, as stipulated in the intergovernmental fiscal balance law No 25/1999. The other 15 percent will be allocated to the provinces where the oil fields are located.

This means that on top of the 10 percent Riau gets from the joint venture which would operate the CPP oil block, it will receive another 15 percent from the government's share.

Based on a document handed over to Commission VIII members during the consultation session, the government is also planning to allow other regions to participate in developing their oil blocks.

In the document, the government said it had decided to prioritize regions for owning a participating interest of 10 percent in the future operation of oil blocks.

The decision, it said, was reached during a meeting with Vice President Megawati Soekarnoputri on Jan 22.

According to the document, a presidential decree concerning the regions' 10 percent stake has already been drafted.(bkm)