Pertamina to set up independent subsidiaries to operate oil concessions

State owned oil and gas company Pertamina will soon change the status of its upstream units across the country into independent subsidiaries, Neraca economic daily reported on Thursday.

With the change in the status, a Pertamina subsidiary in charge of oil and gas exploration and production in certain working area will be responsible for the financing of its own operation. ?It means that there will be no more cross-subsidy from one operation unit to another,? said the chairman of upstream authority BP Migas, Rachmat Soedibjo.

At present, Pertamina manages and operates its upstream units across the country under a consolidated financial system. Pertamina must change the status of the operation units into independent subsidiaries to abide by the new oil and gas law.

Rachmat said each of Pertamina?s working areas, under the new law, should be operated by different companies, and as the consequence, there will be no more cross-subsidy from one working area to another. ?Their finances can no longer be consolidated,? he said.

Each working area will be also regulated under a single production sharing contract. ?It means that the production split between Pertamina and the government will be based on the production of each working area in respective province, not based on all the operation units,? he added.

He said that the cross-subsidy would be prohibited because if it is allowed it will provoke protests from the local government because the cross-subsidy will reduce its earnings. (*)