Govt regulation on cost recovery to be issued in March

The regulation the expenses of oil and gas conractors reimbursable by the government under the cost recovery scheme of the production sharing contract (PSC) system will be issued in March, Kontan reported on Tuesday.

Director General of Oil and gas at the Energy and Mineral Resources Ministry, Evita Herawati Legowo said in Jakarta on Monday that her office and the Finance Ministry were still finalizing the draft regulation.

She said the regulation would have 11 chapters and thus far no agreement has been reached on two chapters, including the one on the implementation of the regulation on and the determination of the Indonesian Crude Price (ICP).

?We hope the regulation can be issued in March,? she said.

The absence of a regulation on cost recovery has partly been blamed on the decline in new investment in oil and gas exploration. With the issuance of the regulation, investors will have a clear guideline on reimbursable cost items.

The government said earlier that it would issue a new regulation that will eliminate 17 expenses that oil and gas contractors can claim for reimbursement under the cost recovery scheme.

The 17 items are, among others, personal income taxes, long-term incentive plans, hiring expatriates without work permits (RPTKA and IKTA), hiring law consultants for unrelated legal matters, tax consultant fees, public relations events without lists of attendees, community development costs, technical trainings for expatriates, and borrowing costs.

Oil and gas companies operate in the country under the so called PSCs, which allow them to ask for refund for the costs incurred in exploration and production activities.

However, some PSCs have been accused of taking advantage in the cost recovery policy by including non-overhead spending into refundable cost items. (*)