Pertamina denies charges PSCs marking up costs

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)