Government rejects Riau's bid to control CPP block

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)