Megawati approves contract extension for CPP: Report

President Megawati Sukarnoputri has approved a one-year contract extension for PT Caltex Pacific Indonesia to continue managing oil production at Coastal Plain Pekanbaru oil block in Riau province, her spokesman was quoted by AFP as saying Friday.

The decision came five days before Caltex's contract to manage 435 oil wells in the CPP oil block expires on August 8, said Megawati's spokesman Bambang Kesowo.

"The contract with Caltex is due to expire on August 8, but after further consideration, the contract is extended for one more year," Kesowo told reporters at the vice presidential palace.

On Thursday, officials in Riau province were quoted by the state Antara news agency as demanding that Caltex pay 26 million dollars in "compensation" to extend its oil contract there.

The head of the Riau provincial oil company PT Riau Petroleum, Muchtar Achmad, said the figure of 26 million dollars had been calculated on the anticipated 62 million dollar profit Caltex would make by extending its contract a further year.

"We demand the compensation funds. If Caltex refuses to pay ... it means that the oil company rejects the extension of its contract," he was quoted as saying.

It was not clear if the Riau government planned to push ahead with its demand after Megawati's announcement.

Caltex's production sharing contract with the state oil company Pertamina provides for an 80-20 split in profits, with the lion's share going to the government.

Antara offered no explanation as to why the compensation demands were made on Caltex and not on the central government's profit share from the Caltex fields.

Achmad, who is also the rector of Riau University, said the province will seek other companies to take over the contract if Caltex refuses the multi-million dollar demand.

Under a shaky new decentralisation policy that came into effect on January 1, Indonesia's 31 provinces and 364 districts are wielding greater control over management of their natural resources.

The new laws entitle the regions to 30 percent of oil profits and 15 percent of gas profits, but provincial officials have complained that funds have been slow to reach them from the national capital, and they are pushing the companies themselves.

Investors meanwhile have complained that the newly empowered regional chiefs are hiking taxes excessively and discouraging new investment in the regions.(*)