Govt drafting new rule on cost recovery

The Ministry of Energy and Mineral Resources is drafting a new rule on cost recovery to cover up the weaknesses found in the existing one, Kontan reported Saturday.

 

Director general of oil and natural gas at the ministry, Luluk Sumiarso said in Jakarta Friday that the draftng process involves various agencies, including state controller BPKP, the directorate general of taxes and the directorate general of budget at the finance ministry.

 

The new rule will be included in the energy and mineral ministerial regulation. “The new rule aims to clarify grey areas (in cost recovery) and reduce irregularities found by BPKP,” he said.

 

The new  rule will essentially regulates recoverable and non-recoverable costs spent by contractors.

 

Contractors that have found and produced oil or gas are entitled to cost recovery “The government will reimburse all the operational costs spent by the contractor from exploration until production stage. The calculation of cost recovery is conducted before the output is distributed to the government and contractor and thus, the amount of cost recovery will affect the portion received by the government and contractor,” he said.

 

Under the existing cost recovery system, costs included in the cost recovery are non-capital costs in the current year for exploration activities, development, operation and administration/ general cost, the cost of depreciation in the present and previous year, and un-recovered cost.

 

The reimbursement in the cost recovery is only effective within the working area of the concerned contractor.

 

According to a working report at the upstream oil and gas regulatory body, BPMIGAS for 2006, the cost recovery has experienced an average 6 percent increase per year for the 1997 – 2006 period. (*)