Indonesia to cut taxes to boost production

Eric Watkins
Senior Correspondent

LOS ANGELES, Dec. 20 -- Indonesian government, in an effort to boost the country's oil output, said it will abolish import duty, value added tax, and income tax on imports of capital goods used for oil, natural gas, and geothermal exploration and development.

Vice-President Jusuf Kalla said the incentives are expected to boost the country's oil production to 1.4 million b/d in 2009. He said Indonesia needs to regain the productivity it had in 1985 when production averaged 1.7 million b/d.

"We had a very large surplus at the time. We could have become a large oil producer. But why were we not able? Therefore, we will increase the target further," Kalla said.

The Upstream Oil and Gas Executing Body (BP Migas) said the country's daily oil production would continue to fall unless new fields were developed. Currently, oil production stands at 1.1 million b/d, while demand is at 1.3 million b/d.

BP Migas Deputy Head Trijana Kartoatmodjo said the country's oil production is falling by 1.2% a year, while domestic oil demand is rising by 1.5%.

He said oil production is expected to fall to 982,000 b/d in 2008 and to 971,000 b/d in 2009 from 995,000 b/d in 2007, while domestic consumption is projected at 1.365 million b/d in 2007, 1.443 million b/d in 2008, and 1.505 million b/d in 2009.

The Economic Research Center of the Indonesian Science Institute (LIPI) expressed pessimism about the government's oil output target of 1.034 million b/d for 2008.

The target on which the government calculated the 2008 state budget is overly optimistic, said Latif Adam, coordinator of the center's research team. LIPI's estimate puts output at 950,000 b/d.

Adam described the government's crude oil production target, and the oil price assumption of $60/bbl used for the 2008 state budget, as "unrealistic."

Contact Eric Watkins at hippalus@yahoo.com.

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