BPMIGAS criticizes cost recovery regulation

In a rare show of siding with investors, upstream oil and gas authority BPMIGAS criticizes the government?s plan to impose government regulation (Peraturan Pemerintah or PP) to regulate cost recovery.

BPMIGAS Chairman R. Priyono said during a meeting with Jakarta-based editors and oil, gas industry community members that the decision to impose PP will scare away investors and would do damage to the industry in the long-term.

?According to current regulation, BPMIGAS and production sharing contractors relationship is based on business-to-business arrangement governed by civil law. If the PP is imposed, then the relationship will be governed by public law with criminal consequence for those who fail to comply,? he said, adding that such arrangement will scare away investors. ?This is not fair for investors who put their money in Indonesian oil and gas industry,? he said.

Moreover, he said, the proposed PP would open possibility for government to cap cost recovery to certain level. ?Under such circumstances, the first reaction of investors would be to cut spending including exploration capital expenditure. Not only this proposed PP would be ineffective, but will also hurt the industry in the long term,? he said.

He further criticized the premise of the government to issue the PP based on the assumption that oil and gas contractors are marking up their expenses. ?The finding (on irregularities) made by Supreme Audit Agency (BPK) is relatively insignificant as it was only less than 1 percent of the total cost recovery claim. Moreover, the findings made by BPK are still disputable. Imposing a PP to prevent such insignificant irregularities is like killing a bird with cannon, which will not only kill the bird, but also destroy the tree where the bird stand,? he added.

Sponsored by Ministry of Finance and Ministry of Energy and Mineral Resources, the government is finalizing a regulation which will strictly regulate cost recovery claim.

An industry source contacted by Petromindo.Com supported Priyono?s stance. ?The PP on cost recovery will be restricting investment in upstream sector, while what the government needs now is actually boosting investment as it is increasingly more difficult and costly to find new reserves of oil and gas in Indonesia.?

?Rather than focusing on limiting cost recovery, the government should develop the existing oil, gas reserves in order to increase state revenue and boost domestic economy and to find new oil reserves to slow down the falling trend in oil production and new gas reserves to support the growing domestic consumption,? the source said. (alex)