Cost Recovery Scheme Must be Changed to Royalty and Tax Scheme

 
Robert Sidauruk, Kartini L Makmur
 
After unmasking the downstream oil and gas industry’s dirty syndicate, the Oil and Gas Management Reform Team continues to accelerate the eradication of the sector’s so called mafia. These efforts are evident in the Reform Team’s suggestion to stop the cost recovery scheme in the upstream sector and change it to a royalty and tax scheme. This is somewhat similar to the current practice in the mining sector.
 
Fahmy Radhi, a member of the Reform Team, explained that the operational costs that must be reimbursed by the government to oil and gas contractors as part of the cost recovery scheme has continued to increase over the last three years. Mr. Radhi contends that contractors mark up amounts in their cost recovery thereby getting the benefit of illegal profits which they claim as operational costs.
 
In 2011, the government granted USD 15.22 billion for cost recovery, which slightly increased to USD 15,51 billionin 2012. The amount went up again in 2013, when the government allocated USD 15.92 billion for cost recovery. In2014, the number went up again to 17.8 billion. Although spending more and more on cost recovery, Mr. Radhi explained that there has not been a commensurate increase in lifting production.
 
“The allocation for cost recovery is getting bigger each year yet lifting production shows a decreasing trend,”said Mr. Radhi in Jakartaon Wednesday.
 
To put further pressure on and squeeze the oil and gasmafia, the Reform Team has recommended that the cost recovery scheme be replaced by a royalty and tax scheme. As a concession to contractors, Mr. Radhi suggests lowering the government’s portion of production sharing contracts to 60%, meaning contractors will be entitled to 40% of production.
 
 “So the product sharing contract remains in place, but the cost recovery scheme is changed,”explained Mr. Radhi.
 
Mr. Radhi further indicated that all possible options to improve the oil and gas upstream sector, including the discontinuance of the cost recovery scheme, will be outlined in the Draft Bill on Oil and Gas. These options will be considered by the government’s when it discusses the revision of the current Oil and Gas Law (Law No. 22 of 2001) with the House of Representatives.
 
“We will keep pushing for a appropriate changes to the Oil and Gas Law. Eradicating the dirty oil and gas mafia syndicate would be so much easier by changing the management system, rather than chasing down the perpetrators,”added Mr. Radhi.
 
(hot/kc)