Government set to revise gross split policy

The Ministry of Energy and Mineral Resources is currently in the process of revising the seven-month old Ministerial Regulation No 8/2017 on gross split policy.

Deputy Minister of Energy and Mineral Resources Arcandra Tahar said on Tuesday that the revision comes following inputs from oil and gas contractors particularly those participating in the 2017 tender of new oil and gas working areas.

He said that the government plans to provide additional incentives for oil and gas contractors in the revised gross split policy, which is expected to be issued soon.

The new incentives include extra 5 percent production split for the first plan of development (POD), and another 5 percent for second POD and the next; and net present value and rate of return which are at least the same or even higher than those set in cost recovery mechanism production sharing contract.

The ministry launched the gross split scheme in January of this year to be applied in new oil and gas contracts, replacing the cost recovery mechanism. Under the gross split policy, the government would no longer reimburse oil and gas contractors? operating costs in return for higher oil and gas production split. Under Ministerial Regulation No 8/2017, the base split for oil production is set at 43 percent for the contractor, and 57 percent for the government. For gas the split is 48 percent for the contractor, and 52 percent for the government.

Some upstream industry players, however, have criticized the new gross split policy, saying that it would make many upstream projects to be not economically attractive.

Executive Director of the Indonesia Petroleum Association (IPA) Marjolijn Wajong was quoted as saying by Kontan on Wednesday that the IPA has basically recommended to the government to make sure that the fiscal terms under the new gross split policy would lift Indonesia?s competitiveness in luring investment in the upstream sector. (*)