Pertamina to ask parliament approval for Kangean PSC contract renewal.

State oil and gas company Pertamina said Wednesday it would ask for endorsement from the House of Representative before deciding whether to approve or to reject Anglo-American energy giant BP's proposal to renew its contract on the Kangean Block Production Sharing Contract (PSC) in East Java.

BP has asked the government to extend the life of its Kangean PSC contract, which would expire in 2010, for another 20 years as it planned to invest up to US$ 350 million to develop another gas field in the block.

Pertamina's director for production sharing management Iin Arifin Takhyan told reporters that the parliamentary approval was necessary to avoid Pertamina being accused of collusion in the future.

"From technical and economic points of view, Pertamina should approve the early extension of the contract, but we don't want to be accused of practicing collusion and corruption. Therefore, we would ask for parliament approval for this matter," said Iin.

Earlier, BP Indonesia president Bill Schrader said production from its Pagerungan gas field in Kangean PSC would start to drop in 2002 as reserves declined.

This would threaten the continuity of gas supply to East Java, he warned.

Currently, BP produces about 340 million cubic per day (MMCFD) of natural gas from the Pagerungan gas field to supply state owned petrochemical producer Petrokimia Gresik, state owned gas distributor PGN and state owned electricity company PLN in East Java.

In order to make up for the decline in Pagerungan, Schrader said it was necessary to develop the Terang-Sirasun gas field, located in the Kangean PSC, which was believed to contain 1 trillion cubic feet (TCF) of gas reserve.

"Even if we start to develop Terang - Sirasun now, we would not be able to start production before 2004," said Schrader.

"Therefore, it is necessary for BP to get the contract renewal to guarantee that we have time to get the pay out...The 20 years extension will also enable us to do some more explorations in the Block," He said.

He also said the contract extension would save the government hundreds of millions of dollars since the gas supply would be secured and no need to turn much more expensive diesel fuel. (Alex/Godang)