Riau sets up own firm to run CPP oil block

JAKARTA (JP): The Riau provincial administration had set up its own company, PT Petroleum Riau Makmur, to develop and manage the Coastal Plain Pekanbaru (CPP) oil block, Governor Saleh Djasid said here on Wednesday.

Saleh said that the establishment of the company was also in line with the province's plan to choose partners to jointly develop the oil block.

"As suggested by the President of the Republic of Indonesia and on the advice of the director general of oil and gas, the Riau provincial administration has established last week PT Petroleum Riau Makmur," Saleh told legislators in a hearing with the House of Representatives' Commission VIII, which among others oversees mines and energy.

Saleh was referring to a statement by President Abdurrahman Wahid in April, saying that Riau must first own an oil company before taking over the operation of the CPP oil block.

The CPP oil block is currently being operated by oil and gas company PT Caltex Pacific Indonesia and state-owned oil and gas company Pertamina.

The government instructed Pertamina and Caltex in 1998 to form a joint venture to operate the oil block, when Caltex's production sharing contract expires in 2001.

Pertamina and Caltex were about to reach an agreement on a 55 percent and 45 percent joint venture when the President bowed to pressure from the province to allow it to control the oil block.

Pertamina's board of commissioners initially offered Riau three options: 1) a joint venture between Riau, Caltex and Pertamina, 2) a joint venture between Riau and Pertamina, and 3) a joint venture between Riau and Caltex.

Riau rejected all three options and instead proposed a fourth option of choosing its own joint venture partner.

However, Saleh declined to name Riau's possible partner, saying only that many investors were interested in joining the province.

"If the government approves our proposal, we will conduct a tender to make it fair," he told reporters on the sidelines of the hearing.

He estimated that future development of the CPP oil block would require an investment of about US$50 million.

"Many (local investors) have pledged to provide the investment so there is no need to seek foreign loans," he said.

Saleh said that Riau and future partners planned to replace Caltex's current position as a production sharing partner of Pertamina.

Under the production sharing contract system, oil companies are entitled to receive 15 percent of their oil revenue, while the remaining 85 percent goes to the government via Pertamina.

Caltex, a joint venture of American-based oil companies Chevron Corp. and Texaco Inc., currently produces about 70,000 barrels of crude oil per day (bpd) at the CPP block.

The company operates a total of four oil blocks in Riau, making it the country's largest oil producer with a total output of about 700,000 bpd, or more than 50 percent of Indonesia's total oil production.

Saleh said that the company planned to recruit current workers of Caltex and Pertamina at the CPP oil block, once it takes over the operation of the block.

The province considered recruiting expatriates to manage the new company, he added.

The Ministry of Mines and Energy has given Riau until Aug. 1, this year to submit the plan of development for the CPP block.

The ministry said the deadline allowed the province one year to prepare to take over operations from Caltex.

Saleh said the province had submitted a proposal on June 2, which was turned down by the ministry, dismissing it as too brief and demanding a more detailed plan.

Saleh expressed frustration over what he sees as apparent reluctance by the central government to provide necessary data for the proposal.

"The director general for oil and gas (at the Ministry of Mines and Energy) has said he would give the data to Riau, but so far we have not received any," he said.

He urged the government to immediately make an official appointment of Riau as the CPP block operator, as this would help it obtain the needed data. (bkm)