Production sharing contract (PSC) no longer attractive to investors

The production sharing contract (PSC) arrangement adopted by the government in awarding oil concessions to investors is no longer attractive to both local and foreign oil companies, according to an executive of a local oil firm.

Sugiharto, the director of PT Medco Energy, said in Jakarta on Monday that the government's recent decision to take over the task of the state oil company Pertamina in awarding the PSC contracts would result in a longer line of bureaucracy, Republika reported on Tuesday.

The second reason, according to him, is the fact that production split stipulated under the PSC contract only benefited the government. The production sharing ratio of 85 percent and 15 percent in favor of the government is no longer fair, because with the current crude oil price of above $30 per barrel, the 85 percent of oil production allocated to the government is certainly too high.

In addition, the fact that the current PSC contract does not allow tax consolidation also caused a high financial risk to investor, he said. According to him, under the present contract, oil company is only allowed to develop certain oil fields. It means that if the company finds new oil wells it has to carry out a different administration process.

"In short, the same investor should have a different balance sheet for different oil blocks," he said, adding that with this system, the company could not compensate the loss it suffered in one area to another oil blocks.

An investor should therefore bear all the cost if one of its oil blocks could not generate oil as expected, he added. (*)