PSC scheme no longer obligatory: Kuntoro

PSC scheme no longer obligatory: Kuntoro

JAKARTA (JP): Minister of Mines and Energy Kuntoro
Mangkusubroto said on Thursday that oil and gas companies will no
longer be required to adopt the production sharing contract (PSC)
scheme for future oil and gas projects.

Kuntoro said oil and gas producers would have the option of
using other contract systems and that the existing PSC scheme
would not be obligatory.

He said the new policy is included in the oil and gas draft
regulations, which would be submitted to the House of
Representatives for approval and would only affect contracts
arranged after the endorsement of the law.

"The law is expected to last for 30 years. We will open all
the possibilities (for choosing types of contracts)," Kuntoro
told The Jakarta Post on the sidelines of a hearing with the
House of Representatives' Commission V for mines and energy.

"The production sharing contract (PSC) is only one type of
contract available in the oil and gas industry. In the future
contractors will be free to choose other types," Kuntoro said.

Kuntoro said President B.J. Habibie was expected on Friday to
approve the submission of the draft law to the House for
deliberation.

"The House will accept the draft law next week," said Kuntoro.

The PSC law was introduced in the late 1950s by then president
of Permina -- the old name of oil and gas company Pertamina --
Ibnu Sutowo.

The first PSC was signed in 1961 by Permina and a small oil
and gas company named Refican from the United States, but it took
many years for major oil and gas companies to accept this type of
contract.

Major oil and gas companies initially rejected PSC for the
clause which granted Pertamina management rights of foreign
contractors' operations in the country.

They preferred the concession system, in which the company is
solely responsible for all operations.

Today, PSC has gained wide acceptance in the world's oil and
gas industry, and the system has been copied by some other
developing countries.

Countries which have similar systems in place include
Malaysia, Mongolia, China, Vietnam, India, Kazakshtan,
Turkmenistan, Albania, Algeria, Angola, Gabon, Syria, Myanmar,
Egypt, Cameroon and North Yemen.

Pertamina has obliged oil and gas contractors to operate under
the PSC system since the 1960s, but over time it has also
introduced some PSC variants, including the joint operating body
(JOB) scheme and the technical assistance contract (TAC), which
both incorporate the basic principles of the PSC.

Analysts say the PSC system enables Pertamina to accurately
check the revenues of foreign contractors and in this way the
government is ensured of its share of revenues.

In a recent seminar titled Oil and Gas Industry in the
Reformation Era, Pertamina staff expert G.A.S. Nayoan said that
aside from the PSC system, the world's oil and gas industry also
operated under several other types of contract, including the
royalty system and service agreements.

Under the royalty, or tax, system, contractors have control
over exploration, production, transportation and marketing of
their products. But they have to supply the host country with a
portion of production revenue, pay taxes, royalties and all costs
of production.

Indonesia applies this system in the mining sector.

Under service agreements, the host countries hire oil and gas
contractors to explore for oil and gas. After the oil and gas
fields are found, the state can take over the operation of the
fields and pays contractors for their services. (jsk)