Govt takes 17 components out of cost recovery list

The government has decided to take out 17 components from the list of expenses that oil and gas contractors can ask for reimbursement under the cost recovery system as part of the effort to improve efficiency in the industry, a senior governmental official said.

"We (The ministry of Energy and Mineral Resources), the State comptroller (BPKP) and the Ministry of Finance have agreed to make a negative list of cost recovery," Director General of Oil and Gas Luluk Sumiarso said during a hearing with the House of Representatives Thursday night.

"The making of the negative list is now in the phase of finalization," he was quoted by Investor Daily as saying.

The negative list which will be stipulated in a ministerial decree will become a reference for oil and gas upstream regulator BPMIGAS in approving the expense reimbursement requesting by the country's oil and gas contractors.

As a matter of fact, he said, BPMIGAS together with the Ministry of Energy and Mineral Resources had issued a letter dated Feb. 29, 2008 specifying the negative list of 17 components but the components still appear on the list of expenses the oil and gas contaractors ask for reimbursement.

Under the existing production sharing contract system, the government takes 85 percent of contractors' oil output and 70 percent of their gas output but it also covers the same portion of the contractors' costs. The amount of cost recovery has risen over the past several years, reducing the government's potential revenue from the industry.

The country's Supreme Audit Agency (BPK) claimed to have found irregularities in the cost recovery.

Meanwhile, BPMIGAS's Deputy for Financial and Economic Affairs Eddy Purwanto said in Jakarta on Friday that the 17-component negative list was made based on the findings of BPK and BPMIGAS, according to Media Indonesia daily.

The 17 components are personal income, loss arising from sales of private house and vehicle, recruitment of expatriates without Expatriate Placement Plan (RPTKA) and Work Permit for Expatriates (IKTA), unrelated legal consultant fee, tax consultant fee, marketing cost attributable to intentional mistake, public relations cost without beneficiary list, community development funds, site restoration funds, technical training of expatriates, merger or acquisition cost, interest on loan, income tax on the third party, procurement of goods and services bigger than Authority for Expenditure (AFE), excessive material surplus, not working assets and transaction with affiliated party.

According to Eddy, the share of the 17 items in cost recovery is not considerable because the largest expenditure of oil industry results from exploration, development and production costs. (*)