MEMR says more and more PSCs change to gross split scheme
Friday, July 5 2019 - 02:08 AM WIB
The Ministry of Energy and Mineral Resources said more and more Production Sharing Contracts (PSCs) holders are changing their contract scheme to PSC gross split scheme from previously cost-recovery based.
"A number of other oil and gas companies are in the process of changing their cost recovery (contract) to gross split scheme," Director General for Oil and Gas at MEMR Djoko Siswanto said at the Indonesia Oil and Gas Outlook Conference held by Petromindo.com on Wednesday (03/07).
The MEMR began applying the gross split-based PSC in early 2017 following the issuance of the Energy Ministerial Regulation No 8/2017 on gross split-based PSC. The first PSC to apply the gross split scheme was PHE ONWJ, whose contract was extended in early 2017.
By applying the gross split mechanism, there will be no longer requirement for the government to reimburse the operational cost of oil and gas contractors through the so-called cost recovery mechanism.
As such, the State Budget will no longer have to be burdened with the huge cost recovery, and finally ends the lingering debate over the cost recovery, one of the components of the PSC scheme, which has been introduced by the country since 1966.
Since the regulation was applied, as many as 42 PSC contracts, consisting of old, amended and new PSC contracts, have changed to gross-split PSC scheme
The enthusiasm of the PSC holders to change their contract scheme indicates that the contract scheme has been well-received by the investors.
Recently, five PSC contracts have requested to change their contract scheme namely Working Area East Sepinggan, Duyung, Lampung III, GMB Muralim and Sebatik. “They sent letter to the government (MEMR) and requested to change their contract to gross split scheme," said Djoko.
In addition to contract amendment, as many as 16 new Working Area contracts have changed to gross split scheme. Of these, 5 WAs were signed in 2017, 9 WAs were signed in 2018, while two WAs -- WA Anambas and WA Selat Panjang were signed in 2019.
Of these 16 WAs, the government received signature bonus of US$25.5 million. They have also set working commitment of US$252 million.
In addition, 21 PSC extensions have applied gross split scheme with investment commitment of US$1.9 billion and signature bonus of US$877 million.
The implementation of gross split scheme marks the new era of the development of oil and gas industry in Indonesia as it is believed to stimulate the government revenues from productive sector.
The scheme is believed to help accelerate the development of oil and gas fields as the costs required no approval from the upstream oil and gas authority SKK Migas. The scheme also stimulates oil and gas industry players to be more competitive and encourages them to improve technology, human resources, operational system and efficiency of costs.
According to Djoko, the gross split scheme is preferred as it is implemented based on three key principles, namely certainty, simplicity and efficiency.
Editing by Roffie Kurniawan