BPMIGAS asks govt to review cost recovery ceiling

Oil and gas upstream regulator BPMIGAS has proposed the government to drop plans to impose caps on cost recovery for next year, arguing the plan would be too burdensome for oil and gas contractors amid the declines in oil price.

The government has planned to start imposing caps on the amount of cost recovery claimable by oil and gas contractors next year in a bid to get bigger revenue from the sector. The plan came afer the government's plan to impose tax on windfall profit faced resistance from the oil an gas contractors.

The contractors are projected to reap a windfall profit this year following the sharp rise in crude prices until the middle of the year. Their profits are however projected to decline next year due to the lower price of the commodity.

According to BPMIGAS chairman R. Priyono, if the price of oil stay at the current level next year, the govenrment's oil and gas revenue will decline. If the government does not change its target revenue from the industry on the state budget, the oil and gas contractors will be forced to increase their output. This will result in the increase in production costs or cost recovery.

"If the lifting volume stays at 960,000 barrels per day and the oil price is lower than the assumption set in the state budget, production should be increased to meet the state budget's revenue target," Priyono was quoted as saying on Wednesday.

He predicted costs in the sector will exceed the US$11.05 billion set in the 2009 state budget. In comparison, the cost recovery totalled $8.7 billion in 2007 and is projected at $10.4 billion this year.

The BPMIGAS proposal has yet to get a positive response from the govenrment. When asked for comments, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Wednesday that in order to meet the BPMIGAS request, the government had to revise the state budget. It had to talk with the House of Representatives' budget commission for the purpose. (*)