Riau to accept 10 percent stake in CPP oil block

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)