New incentives vital for oil, gas sector

New incentives vital for oil, gas sector

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The government must renew the existing incentive package for
oil and gas investors to help boost fresh investment into the
sector, according to a consultancy firm.

James Brown of James Brown and Associates said on Wednesday
that new incentives were necessary as oil and gas were getting
more difficult and costly to find.

"Indonesia's upstream fiscal regime is generally recognized as
being one of the harshest in the world.

"The 'easy' oil has been found and the going will get
tougher," Brown said at the Indonesian Petroleum Association's
28th annual conference.

He said that companies would now have to turn to deep water
and frontier areas to boost the country's oil production with
greater cost and risk.

"Without any improvement on incentives, Indonesia will become
less competitive than other countries (in attracting new
investment)," Brown said.

He urged the government to establish a special fiscal regime
for gas development projects in difficult areas.

Vice president of Gulf Indonesia Resources Supramu Santosa
concurred.

"It's clear the current incentives will not be able to (help)
boost oil output," he said.

He pointed out that the recent suspension of investment worth
around US$1 billion in oil exploration was partly due the lack of
incentives.

"We need nonconventional incentives," he said, without further
elaborating.

The government's last incentives package was introduced in
1993, but since then the government has not taken the initiative
to review the package.

The incentives include an oil production split of 65 percent
for the government and 35 percent for investors, and a gas
production split of 60 percent for the government and 40 percent
for investors.

Director general for oil and gas Rachmat Sudibyo said the
government welcomed any inputs to improve the country's oil and
gas investment climate.

Rachmat said the government was committed to attracting
investors in the oil and gas sector due to the sector's
significant contribution to the economy.

He said, for example, that the new oil and gas law, passed in
November last year and aimed at liberalizing the upstream and
downstream oil and gas sector, was part of the government's
commitment to providing a better investment climate.