Cost Recovery in Upstream Oil & Gas Business Activities

The government has finally realized that it can maximize its revenue by demanding that companies operating in the upstream oil and gas sector become more effective and efficient in the conduct of their business. This in turn will allow the government to better utilize this increased revenue to improve the prosperity of all Indonesians.

The Minister of Energy and Mineral Resources (Energi dan Sumber Daya Mineral / ESDM) Regulation No. 22 of 2008 limits the number and type of activities and fees that may be claimed as cost recovery by the Joint Work Contract Contractor (Kontraktor Kontrak Kerja Sama / KKKS). The only activities and fees that are now recoverable under the cost recovery provisions are those that can be evidenced as being directly related to the exploration or exploitation of the within the work contract area.

The Attachment lists 17 items which are no longer recoverable. These include, among others, the following:

-                 Personal Income Tax, and losses on the sale of personal homes and vehicles;

-                 Long Term Incentive Plans;

-                 Expatriate labor that is not recruited pursuant to a Expatriate Labor Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing / RPTKA) and a subsequent Expatriate Work Permit (Izin Kerja Tenaga Asing / IKTA);

-                 Legal fees not associated with the business activities;

-                 Tax consultant fees;

-                 Public Relations activities such as golf, bowling, credit cards, membership fees, and others;

-                 Community development expenditure;

-                 Technical training for expatriates; and

-                 Transactions with affiliated parties that cause losses to the government.

The Regulation has been in force since 30 June 2008.