Local Govts Get 10% Cuts in All New Oil, Gas Contracts

An offshore rig belonging to Pertamina Hulu Energi near Madura in East Java. (Antara Photo/Zabur Karuru)

By : Retno Ayuningtyas | on 10:36 AM December 13, 2016
Category : Business, Commodities

Jakarta. Regional governments are now entitled to 10 percent participating interest in any new or renewed oil and gas block projects and does not have to provide any upfront capital for the shares, according to the latest Energy and Mineral Resources Ministry regulation.

The regulation, which came into effect last month, aims for giving more economic benefits for regencies or provinces where the oil and gas blocks located.

Under the regulation, oil and gas contractors need to offer and pay for the 10 percent interest in the bloc to a local government-owned enterprise as a loan.

Should local government agreed and take up the offer, it would pay the contractors overtime with its share of oil and gas production, but is interest-free, the regulation states.

"This regulation is only imposed on new or renewed oil and gas [profit sharing] contracts. So, the PSC contractors can calculate whether its economical or not," I Gusti Nyoman Wiratmaja, the director general of oil and gas at the ministry, said over the weekend.

Christina Verchere, the chairwoman of Indonesia Petroleum Association, said oil and gas firms agreed with the need to create more benefits from projects for locals. But the companies still need more time to discuss implication of the regulation on their business plans.

Others hope that shares for the local government would help ensure better coordination with local authorities for permits and regulations relating to oil and gas field operation. Even if that means having to provide upfront loans to the local government.

"In principle, we are ready to implement it. This is not the question of heavy or light burden, because the regulation goals is good," said Samsyu Alam a director at Pertamina Hulu Energi, the upstream arm of state energy company Pertamina.

The regulation also stated that local government — or governments in case of the oil and gas block encompassing several provinces  must own at least 99 percent in the entity that will hold the participating interest.

Also, if local government does not respond to the participating interest offer in one year, contractors should offer the shares to state-owned enterprises, which have 60 days to respond.


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