The Executive Agency for Upstream Oil and Gas (BPMIGAS) have requested that the Government Regulation no. 79 of 2010 on Recoverable Operating Costs and Income Tax Treatment in the Oil and Gas Upstream Sector (GR Cost Recovery) should not be applied to existing contracts in order not to disturb the contracts that have been running for a long time, says the BPMIGAS Chairman. The implementation of the policy will affect the return on investment and the legal security of investors.
“This GR on Cost Recovery should only be imposed on new contracts which have not yet been offered or signed,” said Priyono, BPMIGAS Chairman.
Upon signing a contract, investors calculate the amount of long term loans required from their creditors. If the contract is unilaterally changed, the credibility of the contractor will be damaged and this will affect future domestic oil and gas investments.
“The oil and gas industry is not comparable to the textile industry which has clear costs and revenues because the oil and gas industry is full of uncertainties,” he added.
The Indonesian Petroleum Association (IPA) stated that the imposition of GR on Cost Recovery has the potential to create a downturn in oil and gas production of up to 150 thousand barrels of oil equivalent per day (boepd).
Sammy Hamzah, Vice President of the IPA, said investors will gradually decrease their investments in the sector if the GR is imposed, but that some of them had actually already adjusted their investment.
Currently, domestic oil and gas investments amount to US$ 12 billion. To reach the oil production target of 1-2 million barrels per day in the next 4-10 years, the association estimates that US$ 23 billion of investment is needed. “That’s why we are conducting a judicial review for PP Cost Recovery,” Sammy said.