Aditya Suharmoko , The Jakarta Post , Jakarta | Tue, 07/01/2008 10:25 AM | Headlines
The government is wrapping up a new regulation that will eliminate 17 expenses that oil and gas contractors can currently claim for reimbursement under the cost recovery scheme, a minister says.
Under the scheme, oil and gas operators can claim expenses related to exploration activities once their blocks are in operation.
The mechanism is among the incentives provided by the government to boost investment in the sector.
However, critics have said the process lacks transparency and accountability and is therefore prone to abuse, something that the planned regulation is trying to address, Energy and Mineral Resources Minister Purnomo Yusgiantoro said Monday.
"To specifically detail activities that can and cannot be refundable under the cost recovery program, we are finalizing a regulation at the ministry," Purnomo told a hearing with the House of Representatives' commission VII overseeing energy affairs.
The ministry's director general of oil and gas Luluk Sumiarso said the regulation detailed the kinds of expenses that could not be claimed, based on the Supreme Audit Agency's (BPK) recommendation.
They include personal income taxes, long-term incentive plans, public relations costs, community development costs and technical trainings for expatriates.
As reported earlier, the BPK found that in 2005 for instance, oil and gas contractors claimed expenses under the scheme for such goods and services as DVDs, parties, dancing courses, charities and Islamic haj pilgrimages to Saudi Arabia.
"Those items should have been excluded from the cost recovery scheme," BPK senior auditor Widodo H. Mumpuni said.
In 2005, the government obtained $19.9 billion from the oil and gas sector, but paid back around $7.68 billion to oil and gas operators.
Upstream oil and gas regulator BP Migas reported the government paid $8.33 billion in reimbursements in 2007.
With the soaring global oil prices, the government has begun efforts to help increase its revenue from the oil and gas sector, forcing contractors to boost efficiency.
Brent North Sea oil struck a record high of $142.98 per barrel in London on Monday, while light sweet crude in New York traded at $142.56 per barrel after hitting $142.99 on Friday, AFP reported.
Oil prices have doubled in the past year, triggering inflation and slowing economic growth.
Director General of Taxation Darmin Nasution has said his office is exercising options to gain increased revenue from the high oil prices.
However, Darmin declined to elaborate.
Expenses no longer refundable 1. Personal income taxes, losses of private car and house sales. 2. Long-term incentive plans. 3. Hiring expatriates without work permits (RPTKA and IKTA). 4. Hiring law consultants for unrelated legal matters. 5. Tax consultant fees. 6. Costs of oil and gas marketing that are caused by oil and gas contractors' mistakes. 7. Public relations events without lists of attendees. 8. Community development costs. 9. Restoration site funds. 10. Technical trainings for expatriates. 11. Merger or acquisitions costs. 12. Borrowing costs. 13. Third-party income taxes. 14. Goods and services procurement larger than authorizations of expenditure (AFE) (Based on BP Migas calculations). 15. Over material surplus. 16. Assets that have been placed into service (PIS) but are not functioning. 17. Transactions with affiliated parties that inflict losses on the state.
Source: Energy and Mineral Resources Ministry, BP Migas and Supreme Audit Agency (BPK)
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