Revenue to be cut for gas exploitation

JAKARTA (JP): The government is prepared to cut the revenue it earns from the exploitation of natural gas reserves to encourage the development of gas reserves and promote the use of gas as an alternative source of energy, Minister of Mines and Energy Kuntoro Mangkusubroto said on Friday.

Kuntoro said the ministry was currently discussing the matter with various parties, including industry representatives, to determine the terms under which new contracts to develop natural gas reserves would be issued to production sharing contractors (PSC).

"The new terms will be applied to future oil and gas contracts. Oil and gas companies already holding contracts will continue to follow the old terms and conditions," Kuntoro said in a media conference.

He said the change was among a package of fiscal incentives being drawn up by the government to entice contractors into developing the country's gas reserves.

Under current production sharing contracts, the government is entitled to 70 percent of profits (including income taxes) earned by contractors exploiting gas reserves in developed areas and 60 percent of profits in frontier areas. The remaining profits go to the contractors.

For oil reserves, the government receives 85 percent of profits earned by contractors in developed areas and 65 percent of profits earned in frontier areas.

Foreign oil and gas contractors have long urged the government to reduce the share of profits it collects to allow gas prices to be cut to make gas more attractive on the domestic market.

Kuntoro said that the government was committed to promoting the use of gas as an alternative source of energy given that oil reserves here were being depleted and the country was becoming increasingly dependent on imports of oil.

If the government was to cut its earnings from gas to boost domestic consumption, the country would spend less on importing crude oil leading to an overall saving for the government, Kuntoro explained.

Although Indonesia is a net oil exporter, it imports around 70 million barrels of crude oil every year to supply refineries belonging to the state oil company Pertamina and about nine million kiloliters of oil products per year due the limited capacity of Pertamina's refineries.

He said that the country had proven gas reserves of 93 trillion cubic feet (TCF), equivalent to one quarter of the total gas reserves in the Asia Pacific region.

Although the country is a leading exporter of liquefied natural gas (LNG), it lags behind other country's in terms of domestic use of gas.

"Gas accounts for one quarter of Indonesia's domestic energy consumption, which is low by international standards given the scale of Indonesia's gas reserves,"

"For instance in Malaysia, whose gas reserves are of a similar size to Indonesia's, gas provides over 40 percent of the country's energy needs," the minister said.

Aside from the package of fiscal incentives, Kuntoro said the government would also take several other measures to promote the development of the country's natural gas reserves and increase the use of gas on the domestic market.

The measures include restructuring the country's gas industry and establishing greater competition and transparency.

To support these measures, Kuntoro said the government was preparing a new oil and gas law which would remove Pertamina's monopoly on the domestic gas market.

He said the new law would provide the legislative underpinning for open competition and would allow producers to sell natural gas to consumers and intermediaries without restriction.

The government also plans to license a number of private companies to distribute gas in separate, designated areas. He said the companies would first have to compete with each other for the right to build gas distribution networks.

"An open process will be introduced to cover the construction of a natural gas infrastructure so that private sector participation will be secured on the basis of fully competitive and transparent procedures," Kuntoro said. (jsk)