Govt sets minimum signing bonus of US$500,000 for new oil blocks
Leony Aurora, The Jakarta Post, Jakarta
The government has set a minimum signing bonus of US$500,000 each for the 27 oil and gas blocks being offered to investors, meaning a total of at least $13.5 million in proceeds if all the blocks create sufficient interest.
Ministry of Energy and Mineral Resources' director of exploration and production Novian M. Thaib said that before, there was no requirement of a minimum signing bonus.
"We have set a minimum of $500,000 for the bonus," he said.
By regulation, winning bidders have to hand over the signature bonus, which is not part of the costs to be recovered from the oil output, within 30 days after a contract is signed.
Analysts say that the lack of a minimum payment in the past has made it easier for companies to decide to a back out of the deal after winning the tender.
As an incentive, the government scrapped the value-added taxes and import duties for all capital goods used during exploration and exploitation, said Novian.
"The equipment will belong to the government, so we will cover the taxes," he said.
Starting on Thursday, the government will open bidding for 14 new oil and gas blocks, ranging from Natuna to Papua.
Aside in addition to those, 13 other blocks from Aceh to Papua will put on offer directly -- meaning that the areas were proposed by investors.
In a bid to attract investors, the government has lowered its share of the oil output to between 65 percent and 80 percent from around 85 percent applied in previous contracts, giving a greater share of the profits to the winning bidders.
Investment credits ranging from 80 percent to 110 percent are also offered for areas with higher risks, such as the deep sea block in the Makassar strait.
"With an investment credit of 80 percent, for each dollar spent, the operator could claim $1.8," said the ministry's director general of oil and gas Iin Arifin Takhyan.
"We are optimistic that investors will be interested in the new blocks," he said. "Our taxation regulations are clear now and oil prices are soaring."
Indonesia is in dire need of new oil finds amid steadily declining output due to many aging fields.
The country's crude oil and condensate production currently stands at about 1.056 million barrel per day (bpd), lower than the target of 1.125 million bpd set by the government.
"We will not be able to meet the target this year," said Iin. "In 2006, however, we have better programs."
Bid information for blocks under the regular tenders and direct offerings can be obtained starting on June 15 and bidders are expected to submit their offers within six months for the regular tenders and one month for direct offerings.
Winners will be announced within three weeks after the close of bidding.
The government plans to offer another 28 blocks in October.