President supports Riau demand over CPP oil block

President supports Riau demand over CPP oil block

JAKARTA (JP): President Abdurrahman Wahid backed on Saturday
the provincial administration of Riau's demand to take over the
management of the Coastal Plains Pekanbaru (CPP) oil block,
despite opposition from state oil company Pertamina.

Speaking during a meeting with Riau's social and political
leaders during his visit to the country's largest oil-producing
province, the President said locals had the right to manage their
oil resources.

During his visit, which was marred by student protests,
Abdurrahman also pledged to cancel the controversial plan to
impose a 10 percent value-added tax (VAT) and a sales tax on
luxury goods in the industrial bonded zone of Batam, which is
located in the province.

Regarding the management of the CPP block, the President said
he would ask Pertamina to delay its ongoing negotiations with
Caltex Pacific Indonesia over the future of the oil block to
allow Riau to prepare to take over the block.

Delaying the negotiations would give Riau the time to set up
its own company to operate the oil block, the President was
quoted by Antara news agency as saying.

Riau has insisted on taking over full control of the oil block
after Caltex's contract expires in August 2001.

The government decided in 1998 to transfer the management and
operation of the oil block to a joint venture of Pertamina and
Caltex. But negotiations over the establishment of the joint
venture have been stalled as both parties insist on controlling
the majority stake in the company.

Legislators have asked that Riau be involved in the joint
venture, but the appeal has thus far received little response
from the companies.

Under existing laws, Pertamina holds the concession rights to
operate the country's gas and oil resources. Local and foreign
companies operating in the oil and gas sector must obtain
production-sharing contracts from the state oil and gas company.

President Abdurrahman said he would soon order Minister of
Finance Bambang Sudibyo to follow up on his decision.

"If the finance minister's signature is not enough then I will
use mine," the President said, receiving a thunderous applause
from the local leaders.

The CPP oil block, which produces approximately 70,000 barrels
of crude oil per day, is managed and operated by Caltex. The
company is a joint venture of American-based oil companies
Chevron Corp. and Texaco Inc., and currently operates four oil
blocks in Riau: CPP, Rokan, Mount Front Kuantan and Siak. The
company produces 740,000 barrels of oil per day, or about 80
percent of the country's total crude oil output.

The President's visit to Riau was tarnished by student
protests demanding the central government allow the provincial
administration to manage its oil resources.

Police fired tear gas and warning shots to disperse hundreds
of students, who attempted to meet with the President at the
Governor's Office.

A student from the University of Riau said the protesters
wanted to discuss the ownership of the CPP oil block with the
President.

The police, however, prevented the students, who had been
waiting for the President since Saturday morning, from reaching
the office.

According to an eyewitness, the tear gas and warning shots
succeeded in dispersing the students, but police officers ran
after them and beat them.

During his visit, the President also made the surprise
announcement that the government would cancel its plan to impose
a 10 percent value-added tax and a sales tax on luxury goods on
Batam island.

The government initially planned to impose a 10 percent VAT
and a 10 percent to 35 percent sales tax on luxury goods on
Batam, the country's largest industrial bonded zone, starting in
April.

The plan has been met by widespread protests from both the
island's residents and businesses. Over 60 foreign companies have
threatened to leave Batam, long regarded as a tax-free haven, if
the government implements the new tax policy.

Minister of Trade and Industry Yusuf Kalla delayed the
imposition of the taxes until June to ease the protests, but his
move seemed to be ineffective. (bkm/sur)