Revised GR No 79 seen as disincentive for oil, gas investors
Friday, September 30 2016 - 03:15 AM WIB
The revision of Government Regulation No 79/2010 on cost recovery and tax treatment in the oil and gas sector is seen as a new disincentive for the oil and gas industry players, according to a source who requested for anonymity.
The government announced on September 23 it has completed the revision of GR No 79, which will become effective once it has been signed by President Joko Widodo.
The source, however, said that there are two main issues that have been opposed by the upstream oil and gas investors with regards to the revised GR No 79/2010.
The first is a plan by the government to apply the newly revised regulation on oil and gas production sharing contracts which have been signed since 2001 (when the current Oil and Gas Law was issued). The source said that investors want the government to honor the current contracts until their expiry, which means that they should not be subject to the new regulation.
The second issue is regarding the planned fiscal and non-fiscal incentives, which will only be given for exploration activities, while for exploitation activities will depend on the economic feasibility of the project.
?These two factors will become disincentives for upstream oil and gas activities. Instead of attracting new investments, the revision (of the regulation) will further undermine the upstream oil and gas investment climate,? the source said, while adding that the Indonesian Petroleum Association (IPA) is scheduled to meet with the Ministry of Energy and Mineral Resources and Ministry of Finance Friday afternoon to discuss the two issues.
Executive Director of IPA Marjolijn Wajong said that there?s plan by the government to also apply the revised GR No 79/2010 on production sharing contracts signed after 2001 until 2010, where oil and gas contractors are eligible to so-called assume and discharge incentives.
?This plan is seen as a breach of contracts, and thus making the contracts to be less attractive as it would lower the economic viability. This will further worsen investment climate in the Indonesian oil and gas sector. IPA will continue to voice (for government) to honor existing contracts,? he said.
Editing by Reiner Simanjuntak