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)