Government provides additional incentives in revised gross split ruling
Monday, September 4 2017 - 01:00 AM WIB
Minister of Energy and Mineral Resources Ignasius Jonan has issued new Ministerial Regulation No 52/2017 on the revision of Ministerial Regulation No 8/2017 regarding gross split oil and gas production sharing contract, among others promising additional incentives for oil and gas contractors including during exploration phase.
?The changes in the ministerial regulation (were made) after considering various inputs from oil and gas production sharing contractors (but) which still maintain fairness,? said Dadan Kusdiana, Head of Communication, Public Information and Cooperation Bureau at the ministry in a statement on Sunday.
According to chapter 7 of the revised regulation, additional output split for oil and gas contractors can be given upon approval of the first plan of development (POD I) after considering evaluation made by the upstream oil and gas authority SKK Migas. The government may also provide additional split in the second and the next PODs prior to the approval of the POD. Such extra incentives were not stipulated under the previous ministerial regulation, the ministry said in the statement.
According to the new regulation, the minister also holds authority to provide additional output split as incentives for the contractors in case the oil and gas field or a number of fields fail to reach the required commercial viability.
The minister introduced the new gross split policy earlier this year, to be applied in new oil and gas contracts, replacing the current cost recovery mechanism. Under the gross split mechanism, oil and gas contractors will no longer get reimbursement from the government for their operating and investment costs in return for higher output split. The cost recovery mechanism has been criticized as creating huge burden for the state budget, and prone to abuse by bad contractors.
But the new policy has also been criticized by some industry players saying it would make investment in the country?s upstream oil and gas sector less attractive.
Jonan has often defended the gross split policy, saying that investment in the upstream sector will still be attractive as long as the contractors can improve their cost efficiency.
Editing by Reiner Simanjuntak