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.