Government to replace PSC with gross split scheme

Minister of Energy and Mineral Resources Ignasius Jonan said that the current production sharing contract (PSC) scheme between the government and oil and gas contractors operating in the country will be replaced with a gross split mechanism.

Ignasius said on Tuesday that by adopting the gross split scheme, there will no longer be an obligation of the government to cover the expenses of oil and gas contractors through the so-called cost recovery mechanism. As such, the state budget will no longer have to be burdened with the huge cost recovery, and finally ends the lingering debate over the cost recovery, one of the components of the PSC scheme, which has been introduced by the country since 1966.

?Regarding cost recovery, in the (near) future we?ll try to implement the gross split (scheme), so that there will no longer be quarrel about the cost recovery. The state budget will no longer be burdened with the cost recovery,? he told members of the House of Representatives Commission VII on energy and mining during a hearing session.

Director General of Oil and Gas at the ministry IGN Wiratmaja Puja said that the minister will soon issue a new ministerial regulation on the gross split mechanism, which the government hopes will improve the investment climate in the sector.

Wiratmaja said that China and a number of countries have applied the gross split mechanism in awarding oil and gas contracts to investors.

Editing by Reiner Simanjuntak