Revenue to be cut for gas exploitation
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)