BPMIGAS unveils reasons behind investors? lack of interest in tender

Oil and gas upstream regulator BPMIGAS cited the pressure on the agency to cut cost recovery as a reason why investors had shown little interest in the tender of 21 oil and gas blocks currently being held by the government, Kontan daily reported on Saturday.

BPMIGAS' Deputy Head of Operation Division Eddy Purwanto was quoted by the newspaper as saying on Friday that there were five reasons behind investors' lack of interest in the tender.

Aside from uncertainty over the cost recovery, the other reasons are the demand from several parties for cancellation of contracts, tax issues, security problems, and local administrations? intervention in oil and gas contract.

According to Eddy, investors think that the demand from several parties for the cancellation of contract reflects Indonesia?s little respect for contracts that have been signed.

On cost recovery, he said the House of Representatives (DPR) had been asking the agency to reduce cost recovery to 19 percent of the revenue from the current 23 percent.

"The question is: Is a 19 percent cost recovery reasonable in oil and gas business, he said.

He said that the reasonable level of cost recovery in the world's oil and gas industry averaged 40 percent of the revenue. ?If the cost recovery is reduced to 19 percent, Indonesian oil and gas sector will not be attractive to foreign and even local investors,? he said.

Eddy was worried that the tender of 25 oil and gas blocks scheduled for October, 2008 would also fail to attract investors, either. (*)