Oil group defends controversial TAC system
JAKARTA (JP): An oil and gas association defended on Monday the controversial technical assistance contract (TAC) system, saying the system had the noble goal of empowering local oil and gas investors.
Effendi Siradjuddin, the vice chairman of the TAC-Petroleum Exploration and Production Company Communication Forum, said the TAC system was introduced in the early 1990s by state oil and gas company Pertamina to increase the role of local investors in the country's oil and gas industry.
However, Effendi said the TAC system gained a bad reputation among the public because politically connected businesspeople during former president Soeharto's administration abused the contract system to enter the country's oil and gas sector and to make quick money acting as brokers.
"As a matter of fact, the TAC system is good in the fact that it is aimed at creating strong local oil and gas firms aside from Pertamina.
"Unfortunately, some people have abused the contract system to the extent that the public now thinks all TAC contractors are bad. In fact, not all TAC contractors are bad," Effendi said during a media conference. He was accompanied by several top executives of the association at the conference.
Most of the country's oil and gas contractors operate under production sharing contracts (PSCs), under which the government takes 85 percent of the output, leaving the remaining 15 percent to the contractors.
The TAC system has gained public attention following a graft case in which PT Ustraindo Petro Gas, which is controlled by Soeharto's son Bambang Trihatmodjo, allegedly obtained four TACs from Pertamina in 1992 and 1993 through corruption.
The Attorney General's Office, which is investigating the case, has named former ministers of mines and energy IB Sudjana and Ginandjar Kartasasmita suspects in the alleged graft, which reportedly caused US$18 million in losses to the government.
Ustraindo obtained four TACs to develop oil fields in Pendopo and Prabumulih, South Sumatra, Bunyu, East Kalimantan, and Jatibarang, West Java.
The Attorney General's Office said awarding the TACs to Ustraindo was illegal because the fields were still in production and Ustraindo illegally used Pertamina's money to develop the fields.
Effendi said a TAC normally covered oil fields that had stopped production or been abandoned by large companies because they were no longer considered economically viable. The abandoned field is, however, still viable for local small companies, which have lower production costs.
In comparison, PSCs cover areas which have not yet been developed.
Under the TAC system, Effendi said, contractors are obliged to provide all of the investment needed to resume production at an abandoned field. It will receive 15 percent of the output, while the remaining 85 percent will be delivered to the government via Pertamina.
Effendi said a typical TAC contractor produced about 2,500 barrels per day and had about 100 workers, all locals.
Effendi said there were currently 33 TAC contractors operating in the country, nine of them having come into production with a combined output of about 12,000 barrels of oil per day.
Initially, TAC contractors were all local oil and gas firms, but today more than 50 percent of the TACs are controlled by foreign investors through share acquisitions.
Many local firms have sold their shares in TAC fields due to financial difficulties caused by the prolonged economic crisis, Effendi said.
"The main difficulty faced by local TAC contractors is the reluctance of local financial institutions to provide them with financing for their projects.
"As such, local TAC contractors are very reliant on financing provided by foreign investors," Effendi said.
He explained that aside from the TAC system, Pertamina had also introduced the Joint Operating Body (JOB) contract system, which has a similar purpose of empowering local oil and gas firms.
He said JOB contracts normally covered productive oil fields. Pertamina invites contractors to invest jointly to raise the output of the fields and share in the increased output. (jsk)