Riau to accept 10 percent stake in CPP oil block

JAKARTA (JP): The Riau provincial administration said on Tuesday it would accept the central government's decision to give the province a 10 percent equity stake in the joint venture that will operate the Coastal Plain Pekanbaru (CPP) oil block.

"I will accept whatever the government decides," Riau Governor Saleh Djasit said on the sidelines of a meeting between governors of natural resource-rich provinces and House of Representatives Commission VIII for mines and energy affairs.

But, Saleh added, he would continue to fight for a 70 percent stake in the CPP joint venture.

The government said earlier its decision to give Riau a 10 percent stake in the CPP oil block was final. It said the remaining 90 percent stake would be held by the central government through state-owned oil and gas company Pertamina.

But the joint venture itself only will receive 15 percent of the output of the oil block, according to the standard Indonesian production sharing contract.

The central government will get the other 85 percent, of which 15 percent must be returned to the province as per the regional autonomy law.

The government has said it plans to offer Riau incentives to compensate it for its small equity interest in CPP.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said earlier Riau would be allowed to export on its own the oil it gets from its 10 percent equity stake in CPP.

At present all companies must sell their crude oil and gas through Pertamina, which holds the monopoly over oil and gas distribution.

Other incentives include the granting of three oil fields to Riau as a "training ground" for the province's oil and gas industry, Purnomo said.

But the final decision on the issue requires President Abdurrahman Wahid's approval. It was the President who last year who bowed to Riau's demand for an interest in the oil block.

When the President signs off on the final deal, it will end the lengthy debate over Riau's involvement in the operation of the oil block.

The CPP block is the first Indonesian oil block to have its production sharing contract expire. American oil and gas company PT Caltex Pacific Indonesia, CPP's current operator, made numerous appeals to the government to extend the contract, which ends in August of this year.

However, legislators demanded the government extend Caltex's contract only if Pertamina was given a majority stake in CPP. The House's demand triggered a tedious negotiation process between Caltex and Pertamina over ownership of the block.

The two parties were close to a deal when President Abdurrahman bowed to demands by Riau that it be given a stake in the joint venture.

Caltex then withdraw from the negotiations because it believed it had no chance to maintain a feasible stake in CPP.

According to Governor Saleh, Riau and the central government are still looking for a win-win solution over the issue.

Purnomo has said the government will offer other provinces a 10 percent stake in oil fields whose production sharing contracts expire.

Saleh, meanwhile, has suggested to the central government that Riau be given a 5 percent share of the gross revenue from all mining, oil and gas operations in the province.(bkm)