Pertamina adds clause on environment to pact

Pertamina adds clause on environment to pact

SINGAPORE (Opecna): Indonesian state oil firm Pertamina has
added a new clause to its production-sharing contract (PSC) in
line with the government's regulation for environmental
protection.

This was disclosed by Madjedi Hasan, petroleum consultant with
PT Prospekindo at a two-day conference on petroleum acquisition
here which ended on Tuesday.

Madjedi, a former PT Caltex Pacific Indonesia vice president,
said the unprecedented clause required the PSC contractor to
remove all facilities and equipment and conduct site restoration
activities within the contract after completing work.

To meet this obligation, the PSC contractor should include in
its budget of operating costs, the cost of clearing, cleaning and
restoring the site.

"If the contract is terminated or not extended, the
accumulated fund will be transferred to Pertamina, which will
then have the responsibility for restoration," he said.

Madjedi added that the new clause in future PSCs would
definitely increase the costs. Also, the provision basically
transferred the responsibility for these activities from the
owner of the facilities, Pertamina, to the operator or
contractor.

In the near term, he said, this could make the Indonesian PSC
less competitive, but given the increasing global concerns on
environmental protection, such a provision would ultimately be
adopted by other countries.

In the paper, Madjedi also pointed out that economic factors
originating from both within and outside the country had affected
and would continue to affect petroleum resources development,
including contract terms.

"But to offset the adverse effects of lower oil prices, the
Indonesian government has shown a sensitivity to the situation
and responded by providing additional incentives directed towards
maintaining Indonesia's international competitive position," he
noted.

Several measures which decreased the administrative burden of
oil and gas exploration and development were introduced.

These included streamlining the approval system by revising
the delegation of authority and raising the expenditure authority
level of the PSC for procurement of materials and services, while
preserving Pertamina management control, primarily through
budgeting and auditing, said Madjedi.