Govt to give percentage of oil, gas yield to provinces

JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto said on Friday the ministry would draft a formula to distribute a percentage of the government's oil and gas revenue to provinces in the form of oil and gas royalties.

Kuntoro said the new royalty ruling was important to fulfill the demand by some provinces for shares in the government's oil and gas revenue, because the existing production sharing contracts (PSC) system did not provide a clear formula regarding the provincial share.

Under the PSC system, the government receives 85 percent of the oil and gas contractors's revenue from oil operations and 70 percent from gas operations. The system does not specify royalties to be dispensed to local administration.

"We shall issue a ruling on oil and gas royalties to support the oil and gas bill currently being debated by the House of Representatives," Kuntoro said.

He said in other mining sectors the government experienced no distribution difficulties because the amount of government royalties paid to local administrations was stipulated in the contract of works.

Mining royalties paid by mining contractors to the government range between 1.5 percent and 7 percent of sales for copper, between 1 percent and 3 percent of sales for gold and silver and 3.5 percent of sales for coal.

The central government receives 20 percent of the royalties, with the remaining 80 percent going to local administrations.

"The royalty-sharing mechanism in the mining sector will also be applied in the oil and gas sector," Kuntoro said.

Several oil and gas producing provinces, including Aceh and Riau, have demanded shares in the government's oil and gas revenue, threatening succession from Indonesia unless the central government meets their demands.

People from Riau have demanded a 10 percent share in the province's oil output while Acehnese have demanded 80 percent of the province's gas output.

Riau produces about 60 percent of the country's oil output of approximately 1.2 million barrels per day, while Aceh is home to giant liquefied natural gas producer PT Arun NGL Co.

Currently, the central government pools all oil and gas revenue in the state budget, distributing the revenue to provinces in the form of development funds, regardless of the contribution of each province.

Several legislators and analysts have questioned the government's commitment to distributing its oil and gas revenue, given the fact that the government-proposed bill on financial balance between the central and local administrations does not provide a clear-cut revenue-sharing formula for all kinds of natural resources.

The oil and gas bill also does not specify any clear-cut formula for the sharing of revenue from oil and gas between the central government and local administrations.

Minister of Finance Bambang Soebianto has thus far refused the House's request to include the revenue-sharing formula in the fiscal balance bill, saying the government would set the formula in separate regulations.

Kuntoro said he did not include a clear-cut revenue-sharing formula for oil and gas in the oil and gas bill because he expected such a formula to be specified in the financial balance bill.

"The revenue-sharing formula should be included in the financial balance bill, not in the oil and gas bill. The oil and gas bill is expected to only contain technical things regarding oil and gas.

"But, don't interpret this as a proposal that the revenue- sharing formula be included in the financial balance bill. The making of the financial balance bill is the minister of finance's right, not mine." (jsk)