Oil and gas producers urged to stop ?mark-up? practices

Members of the House of Representatives (DPR) have urged BPMIGAS, the government?s agency responsible for exploration and production in oil and gas, to stop mark-up practices which are now rampant among oil and gas companies, Kompas reported on Friday.

In a hearing with BPMIGAS on Thursday, the Commission VIII of the House charged that many production sharing contractors (PSCs) carried out mark up practices in order to get a higher amount of funds from the government to cover their operating costs.

A member of the commission said that an oil producer had, for example, marked up the recovery cost by US$40 million. This information, he said, was leaked by a public accountant auditing the company.

Indonesia?s oil producers carry out their activities under a production sharing contract (PSC) of 85 percent and 15 percent in favor of the government. But the oil companies are allowed to recover the cost of exploration and production activities from the government.

Chairman of BPMIGAS Rachmat Sudibjo promised to investigate the possible abuse of the cost recovery scheme in exploration and production of the country?s oil and gas.

He said that the recovery costs for oil and gas exploration activities had significantly increased during the past five years. The recovery costs which totaled only about US$3.41 billion in 1998 increased to US$3.71 billion in 1999, to US$3.90 billion in 2000, to US$4.34 in 2001 and to US$5.07 billion in 2002.

Rachmat said that the sharp increase in the recovery costs was caused by the increase in the total investment for oil and gas exploration which rose by about 6.8 percent a year. The significant increase in the recovery costs were also partly caused by the higher operating costs spent by oil companies in old oil wells, which accounted for about 80 percent of the active oil wells in the country. (*)