Pertamina denies charges PSCs marking up costs

JAKARTA (JP): State oil and gas company Pertamina has dismissed charges that production sharing contractors (PSC) are guilty of substantially marking up the cost of oil and gas exploration and production in order to boost their earnings.

The head of the company's directorate responsible for foreign contractors, Gatot K. Wiroyudo, said Pertamina, the Supreme Audit Agency (BPK) and the State Comptroller (BPKP) conducted stringent audits and closely supervised the spending of all exploration and production contractors leaving little chance, if any, for them to engage in corrupt practices such as marking up their costs.

Furthermore, oil and gas companies were renowned for their sound business ethics, he said.

"I don't see any indication that they have been marking up their costs," Gatot said.

Gatot was responding to the recent accusations leveled by noted economist Laksamana Sukardi at PSCs operating in Indonesia. He said that as a matter of routine they marked up expenditure on oil and gas exploration and production by US$800 million every day, or $24 billion every month.

The government, which holds a stake of between 75 percent and 90 percent in PSC oil and gas operations, is thus being cheated of $288 billion every year, Laksamana was quoted by Kompas as saying.

There are currently 155 production sharing contractors active in the oil and gas sector here.

Contractors put up their own money for exploration. The money will not be reimbursed by the government if the companies fail to find oil or gas.

If they discover and develop reserves then expenditure on exploration and production is calculated as a cost that can be deducted from the earnings on the reserves.

The government then takes between 75 percent and 90 percent of the net revenue, leaving the remainder to the contractors.

"Thus contractors that mark up their expenditure automatically reduce their earnings, as well as the government's. So what's the point of marking up their costs?" asked Gatot.

Gatot said that contractors set an annual budget for their operations which had to be approved by Pertamina.

Pertamina regularly checks on how the budget is used by contractors throughout the year then, together with the Supreme Audit Agency and the State Comptroller, audits their expenditure at the end of the year.

Gatot said the annual contractors' budget for oil and gas exploration and production for 1998, at $6.4 billion, was the highest ever set.

"I don't see how contractors could cheat the government out of $24 billion each month given that their annual operational budget stands at $6.4 billion," Gatot said.

He said gross oil and gas revenues from PSC operations ranged between $12 billion and $14 billion each year.

Gatot noted that under a 1994 government regulation, contractors were obliged to put the supply of goods, materials and services to support their operations out to open tender. However they are required to choose local companies, especially those located in the PSC contract areas, in preference to foreign operators.

Laksamana charged that Pertamina had given certain companies the right to monopolize the supply of goods, materials and services to PSCs.

But Gatot dismissed the allegations and said that none of the hundreds of PSC suppliers throughout the country enjoyed monopoly privileges. (jsk)