FOCUS: Exploration tax raises uncertainty in oil and gas industry
Tuesday, April 20 2010 - 01:57 AM WIB
The directorate general of taxation?s decision last week to impose 20 percent withholding tax on exploration drilling activities has come as another hurdle in the way of oil and gas upstream sector regulator BPMIGAS and the Energy and Mineral Resources Ministry to increase the national oil and gas production.
BPMIGAS?s deputy chairman Wibowo S. Wirjawan told Petromindo.Com last Thursday that the exploration tax, which was non-existent in the past, would only discourage all oil and gas PSC contractors from carrying out drilling activities in Indonesia.
?Risks of exploration drilling are to be faced by contractors alone. If they fail to find oil or gas then they themselves will shoulder the financial loss. That?s why they shouldn?t be burdened with additional 20 percent cost,? he said.
The exploration tax has added to a series of regulations that are considered as hampering the efforts of increasing the country?s production of oil and gas this year. Previously, the industry has been disturbed by the Ministry of Environment?s move to implement the Law No.32/2009 on Environmental Management and Protection, the Forestry Ministry?s regulation obliging investors to first get permits of forest use before starting operations, several regional regulations, and the government?s plan to issue new regulation on cost recovery aimed to cap costs recoverable by investors.
Evita H. Legowo, the Director General of Oil and Gas at the Ministry of Energy and Mineral Resources, said that the environmental regulation alone could potentially cut oil and gas production by half this year. With the implementation of the exploration tax, things will only get worse.
Evita said that her ministry would ask the Ministry of Environment to postpone the environmental law for at least three years so that oil and gas contractors have enough time to prepare themselves with facilities needed to comply with the law.
Wirjawan also said that BPMIGAS together with the directorate general of oil and gas were trying hard to lobby the directorate of taxation to cancel its decision.
Regardless of what would be the results of the lobbies, all the above-mentioned regulations have created a sense of uncertainty among investors. And the new exploration tax has escalated such sense.
Recently, in an interview with Petromindo.Com, Star Energy?s chief executive officer Bret Mattes noted that the barrier for Indonesia to attract new investors to its oil and gas sector is the lack of certainty in the government?s policies.
?I think, it?s concerned with uncertainty. I?ve sat in forums a lot with foreign investors in Indonesia. They?re very disturbed with policies. I can understand that. For them to make a decision, they need a certainty. When the environmental law was introduced, there was still ambiguity in it. We?re not sure how it should be applied to the oil and gas operators. So I think the government needs to put more clarity on it,? Bret said, adding that such sense of uncertainty was normal as the government was going to issue 22 implementing regulations on the law.
The sense of uncertainty was also confirmed by Ron Aston, the Chairman of the Indonesian Petroleum Association (IPA). He said that the controversial regulations concerning environment, forestry use, taxation, cost recovery, have sent a bad signal to investors. ?Investors see that as a negative move that will certainly discourage potential future investors,? he noted.
He added that as investment in oil and gas sector was a long term one in nature, more than 20 years, and require huge amount of funds, investors badly need a certainty so that they knew for sure that the return of their investment is guaranteed.
?I think, Indonesia should maintain its investment attractiveness, by creating a certainty to its regulations. Don?t introduce regulations that could impact contracts and create uncertainty,? he told Petromindo.Com recently. (end)
The author is an editor of Petromindo.com. He can be contacted at besalicto@petromindo.com