More incentives needed for Timor Gap projects

By Riyadi

NUSA DUA, Bali (JP): Indonesia will propose additional incentives at the meeting of the Ministerial Council on the Timor Gap for oil and gas exploitation in the region, Minister of Mines and Energy Kuntoro Mangkusubroto said here on Wednesday.

Kuntoro, who will lead the Indonesian delegation at the meeting on Thursday, said more incentives were needed because the exploitation of gas and oil in the Timor Sea has proved to be so costly.

"BHP and Phillips have found gas reserves in the Bayu-Undan field. But because development is not economically viable, they need more incentives," he told journalists on the sidelines of the fourth meeting of the Australia Indonesia Ministerial Forum.

Kuntoro noted that the incentives could include the abolition of the various withholding taxes and the prolonged depreciation of investment and assets.

Australia's Broken Hill Pty Co Ltd and Phillips Petroleum Co are big shareholders in the Timor Gap project.

They have proposed building a gas liquefaction plant to process natural gas from the Bayu-Undan field. The development of this field is expected to cost US$1.5 billion.

Oil has been flowing since July, 1998, from the region's Elang, Kakatua and Kakatua North fields, all run by BHP.

BHP said that the company would invest A$130 million to continue developing the fields.

Some analysts have estimated that revenues from the Timor Gap could reach some $11 billion based on reserves of 30 million barrels of oil and 175 million barrels equivalent of liquefied natural gas and plentiful supplies of condensate.

Kuntoro, however, downplayed the estimate, saying that so far the Indonesian side has only been able to collect US$1.1 million from oil coming from the Elang and Kakatua fields.

"It means that in one year, we will get only $2.2 million," he said.

Kuntoro noted that the meeting of the Ministerial Council on the Timor Gap would focus on technical and economic issues of the projects in the region, including the fate of the Bayu-Undan project.

"We will not talk about the political side of the Timor Gap treaty. This is up to the foreign ministers to discuss."

Minister of Foreign Affairs Ali Alatas said Indonesia did not expect any change in the status of the Timor Gap treaty unless East Timor decided to part from Indonesia.

The Timor Gap treaty was signed by Australia and Indonesia in 1989 and splits the sea between East Timor and Australia into three zones, one Australian, one Indonesian and the Zone of Cooperation (ZOCA) shared by both countries.

Under its terms, revenue from production in the ZOCA is shared equally between Australia and Indonesia. (rid)