Riau and Pertamina CPP talks deadlocked

Riau and Pertamina CPP talks deadlocked

By Berni K. Moestafa

JAKARTA (JP): Negotiations between state-owned oil and gas
company Pertamina and the province of Riau over the establishment
of a joint venture to operate the province's Coastal Plain
Pekanbaru (CPP) oil block are stalled as both parties are
insisting on a larger stake in the joint venture company.

"There hasn't been any progress yet, so we're still waiting
for the government to decide what to do with the planned joint
venture," Pertamina president Baihaki Hakim told reporters on
Friday.

Baihaki said that negotiations with Riau were proceeding
slowly, with the province insisting on a 70-percent stake in the
project.

He said Pertamina could not accept the province's demand
because, based on a concession made in 1998 between the
government and the House of Representatives, Pertamina should
become the majority shareholder in the CPP oil block once the
contract of its current operator, PT Caltex Pacific Indonesia,
ends in 2001.

The government then instructed Pertamina and Caltex to form a
joint venture to extract the oil, of which Pertamina was poised
to become majority shareholder.

"All we do is stick to that earlier concession in our
negotiations with Riau," he said.

Under production sharing contracts, operators of oil fields
receive only 15 percent of their oil production and the remaining
85 percent goes to the central government.

Pertamina and Riau are now fighting over the share of the 15
percent that is available to them.

The negotiations began after President Abdurrahman Wahid in
April unexpectedly agreed to Riau's demand to join in with the
development of the CPP oil block.

The government has since been waiting for Riau to submit a
viable proposal for the oil block's development.

But Riau has yet to submit its proposal, which should contain
detailed stipulations of its partners' and its financial
commitment to operate the block, as both the provincial
administration and its would-be partners are still divided over
their ownership of the joint venture.

Baihaki said it was up to the government whether Pertamina
should continue negotiating for a majority stake.

"If the government and the House agree to change their
concessions on Pertamina, that is fine with us," he said.

Autonomy law

Pertamina's president questioned Riau's participation in the
oil block, saying that upcoming autonomy laws had already secured
Riau's stake in the block.

"Actually the government has problems here," he said.

President Abdurrahman bowed to public demands in Riau when he
gave his approval for the province to run the block.

Riau had said that the presence of Caltex in the province,
which produces over 50 percent of the country's oil, was of
little benefit to them.

But Baihaki said that Riau's complaints were already
accommodated in the autonomy law, where the province receives a
15 percent share of the governments' oil revenue from CPP.

Based on Law 25/1999 on intergovernmental fiscal balance, 85
percent of oil revenue will go to central government and 15
percent to the regions. The law will be implemented beginning
next year.

Of the 15 percent, the provincial government will receive 3
percent, and the regency where the oil field is located will
receive 6 percent. The rest will be equally divided among other
regencies within the same province.

"We already have laws for it (Riau's demand), so why do we
still have this mess?" Baihaki said of the stalled negotiations.

He said that the law ensured that provincial governments
receive a share from central government's revenue.

"This is a matter of government policy that is beyond
Pertamina's role," he explained.

Baihaki suggested the government fully discuss the impact of
Riau's participation before handing over the oil block.

"Don't rush it, we still have one year," he added.

The government initially expected Riau's proposal by August 1,
exactly one year before Caltex's contract ends.

But director general for oil and gas at the Ministry of Mines
and Energy Rachmat Sudibyo stressed that the government had no
fixed deadline for Riau to submit its proposal.

According to the ministry, the proposal should cover aspects
such as management, financial backing, and Riau's potential
partner in operating the oil block.

The proposal followed Riau's suggestion that it picks its own
partner for operating the oil block.

The government first considered Riau either teaming up with
Caltex or Pertamina to establish the joint venture.

Separately, legislator Irwan Prayitno said that the House
remained firm in its earlier concession, which called for
Pertamina to operate and own a majority stake in the CPP oil
block.

He suggested that Riau might participate in managing the
business affairs of the joint venture without playing a role in
its operational affairs.

"This would be in accordance with our earlier concession,"
Irwan, who chairs House Commission VIII for mines and energy
affairs, told The Jakarta Post.

He said Pertamina and Caltex were experienced oil companies
and he feared that inefficiencies would seep in if an
unexperienced firm took over the oil block's operation.

The CPP oil block is one of four Caltex oil blocks in Riau,
and produces about 70,000 barrels of crude oil per day.

Caltex is a joint venture of American-based oil companies
Chevron Corp. and Texaco Inc.