Govt will cut down cost recovery spending in state budget

The government plans to cut down the amount of costs recoverable by oil and gas contractors by recategorizing some activities in the oil and gas upstream activities into ones in downstream sector.

Speaking during the official launch of the integrated services in oil and gas investment last week, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that that the government was preparing a governmental regulation (PP) on the inclusion of some activities in the upstream sector into the downstream sector.

Such activities include the construction of oil and gas pipeline and a liquefied natural gas (LNG) plant, the minister said.

He said the change would enable the government to reduce the cost recovery now paid through state budget.

Oil and gas contractors operate under a production sharing contract (PSC) are allowed to claim the expenditures used for their operations and supporting activities from the government. Such a claim is more popularly called cost recovery funds

The cost recovery program has been widely criticized following a finding made by the state audit agency that many companies involved in oil and gas exploration and production had also asked for compensation for non-refundable spending.(godang)