Govt, Exxon still divided over 'value retention concept'

The ministry of finance and ExxonMobil are still divided over the value retention concept that would be used to calculate the compensation to be paid by the government to cover the difference in prices of gas sold at the domestic and international market, Koran Tempo reported on Friday.

Director General of Financial Institution at the Ministry of Finance Darmin Nasution said in Jakarta on Thursday that the ministry had in principle agreed with the idea of covering the difference in prices of gas at home and at international markets as proposed by ExxonMobil. "But how we should calculate it, it is still debatable," he said about the value retention concept.

BPMIGAS, the government in charge of oil and gas exploration and production activities, and ExxonMobil have proposed the ministry to pay the compensation for the difference of the prices of gas sold by ExxonMobil?s gas to local fertilizer producers.

ExxonMobil has been required to sell part of its gas to Aceh-based fertilizer companies PT Pupuk Iskandar Muda and PT ASEAN Aceh Fertilizer. The request however causes a problem because the existing gas deposits held by ExxonMobil are only enough to meet the need for the production of Liquefied Natural Gas (LNG) for its buyers.

To solve this problem, the government has asked ExxonMobil to transfer its obligation to meet the South Korean order to the Bontang LNG plant in East Kalimantan. ExxonMobil has agreed with this proposal as long as the government pay the difference in prices.

The prices of gas sold to fertilizer producers are much lower than if the gas sold in the form of LNG to foreign buyers. This is why ExxonMobil demands the compensation for the price gap.

However, Darmin said that the government could not cover all of the price gap resulting from the switch of Exxon Mobil?s gas sales to domestic buyers. According to the Gas and Oil Law, an oil and gas production sharing contractor such as ExxonMobil has the obligation to supply part of its gas production to domestic market, he said.

Although the requirement is not stated in the contract, the production sharing contractor is still obliged to use part of their gas or oil production for domestic needs, Darmin said. (*)