?Gas contract with BP Indonesia should be amended?

The contract of gas supply between Beyond Petroleum (BP) Indonesia and its buyers in East Java should be amended to allow the existing buyers get a compensation if the oil and gas giant fails to meet the supply requirement as stated in the contract agreement, analysts urged as reported by Bisnis Indonesia on Monday.

"Under the take or pay principle (in the contract), it is only buyers who are required to pay compensation," noted oil and gas observer Kurtubi said. According to him, the current contract is not fair because the sanction is only given to buyers while the supplier is exempt from punishment even if it fails to meet the supply requirement.

He said the cut in the supply resulting from damages in production or distribution facilities were often engineered as part of producers? efforts to force the government to extend their contracts. "Many production sharing contractors do not properly maintain their facilities particularly when their contract almost expires. This has forced the government to extend it," he added.

BP Indonesia has significantly cut the gas supply from its Pagerungan field, Madura East Java following a leakage in the company?s gas pipeline. The leakage has caused a major shortage in the gas supply to its main buyers including the 500-MW Gresik power plant, ZA fertilizer producer PT Petrokimia Gresik and the state owned gas distribution company PT PGN.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro acknowledged that the gas contract signed by BP Indonesia to sell gas in East Java gave no sanction even if the company failed to meet the supply requirement.

He, however, said that any change in the contract should be made under the approval of both suppliers and buyers. "The contract should be changed by both parties under the business-to-business principle," he added.

The leakage has caused the decline in the gas supply from BP?s Pagerungan gas field to only between 100 million cubic feet per day (MMCFD) from 160 MMCFD and 180 MMCFD normally. Of the 100 MMCFD of gas supplied by BP, about 60 MMCFD go to PLN, 25 MMCFD to PGN and 15 MMCFD to Petrokimia Gresik.

Under its contract, BP is actually required to supply about 600 MMCFD of gas to East Java but it could meet the contract due to the decline in the company?s gas production. The leakage in the pipeline further worsen the company?s capacity to supply gas to the province. (*)