Tax incentives sought for downstream sector

Leony Aurora, The Jakarta Post, Jakarta

In a bid to help boost investment, the Oil and Gas Downstream Regulatory Agency (BPH Migas) has asked for tax incentives for certain imported capital goods in the downstream sector.

The agency sent a letter to the Ministry of Finance last week requesting lower import duties on materials and machinery for large investments in the sector, such as refineries and fuel storage depots, BPH Migas chairman Tubagus Haryono said on Tuesday.

"We did not ask for specific (tariff) figures, simply for a cut," he said on the sidelines of a seminar on natural gas here. At present, import duties on certain goods can reach 100 percent, he added.

Tubagus explained said that investment in downstream sectors, for example in refineries, require large sums of capital but relatively small margins of profit.

"Without incentives, investors won't be so keen to build here."

As for gas stations, which require less investment, these "should not receive such incentives," he said.

According to the new oil and gas law, which was introduced in 2001, state oil and gas firm PT Pertamina will no longer hold a monopoly over the refining, distribution and retailing of oil and gas starting November this year.

The government has said that it needs four oil refineries to be built over the next four years to cut down on fuel imports. Each refinery is estimated to cost around US$1 billion.

Pertamina owns and operates nine refineries at present, with a combined capacity of close to 1 million barrels per day -- not enough to meet domestic demand. The firm imports about 400,000 barrels of oil products per day to cover the deficit.

Tubagus said that several local and international companies had approached the agency, showing interest in getting a piece of the downstream business.