Riau begins CPP operation despite unfinished business

Riau begins CPP operation despite unfinished business

Haidir Anwar Tanjung, The Jakarta Post, Pekanbaru, Riau

A joint venture between state-owned oil and gas company Pertamina
and the Riau province-owned firm PT Bumi Siak Pusako (BSP)
officially began the operation of the Coastal Plains Pekanbaru
(CPP) oil block on Friday despite the existence of some
unfinished business between local stakeholders.

Siak Regent Arwin AS told reporters after a ceremony marking
the historic event in the Riau town of Siak at midnight on
Thursday that no agreement had been reached between the regencies
and the provincial government over their respective shares of the
block.

He said that Siak regency insisted on demanding the lion's
share of 70 percent of the stake belonging to Riau on the grounds
that most of the block was located within Siak.

The law stipulates that the central government holds 85
percent of the shares and the rest goes to the regional
government. State revenue from crude oil extraction after tax is
divided up in a ratio of 85:15 and from natural gas extraction at
70:30.

The CPP block covers an area of around 9,600 square
kilometers, of which some 92.8 percent is located in Siak
regency, about six percent in Bengkalis regency and two percent
in Kampar and Pelalawan regencies, with a total of 486 wells
being involved.

Arwin expected the unsettled dispute would not affect the
operation of the oil block, the first in the country ever to be
controlled by a province.

"We mean business in the way we operate the oil block, so
let's put the debates behind us. This is our internal problem
which the central government is not supposed to intervene in,"
Arwin said.

The oil block was formerly operated by American oil and gas
company PT Caltex Pacific Indonesia, whose contract expired on
Thursday.

Riau Governor Saleh Djasit had wanted only 49 percent for
Siak, with 15 percent of the remainder being shared by the
province and 12 percent by each of the other three regencies.

The governor's written proposal to energy and mineral
resources minister Yusgiantoro on July 22 that the signing of a
production sharing contract between PT BSP and Pertamina's Oil &
Gas Executive Body be postponed from the scheduled date of Aug.
8, 2001, was turned down by the government.

As the regencies were maintaining their claims, the control
over the oil field remained unclear, amid rumors that the central
government would again take over the block.

"We disagree with (central) government control. The share
ownership within the BSP should therefore be based more on
business considerations than local interests, which will only
harm the stake belonging to the Riau community," Thamrin Nasution
of the provincial legislature told The Jakarta Post.

Under the new management, the joint venture company expects to
maintain the current production level of 42,000 barrels of oil
per day. BSP president Azaly Djohan said in that in the long term
the company would boost production by establishing some five new
wells with an investment estimated to reach up to US$1 million
per well.

BSP has announced a plan to recruit around 285 workers, of
which 29 would come from Caltex.

Arwin expressed guarded optimism that the joint venture could
manage the oil block, thanks to the new recruits.

"Everything is already in place, so there's nothing to worry
about," Arwin said.

The CPP block has been a topical issue for years in view of
the presence of two billion barrels of oil deposits on 30 plains
in the block, making CPP's assets worth $500 million.

Caltex has been contributing Rp 3 billion a year to the
provincial government from oil production here.

In sharp contrast, Caltex's contribution to the central
government in November, for instance, totaled US$4.5 billion,
which had prompted Riau to fight for control of part of the
existing fields.