Indonesia to place BPMigas VPs within IOCs

Aug. 4, 2008
Indonesia, in a bid to exercise greater control over contract holders, will allow upstream oil and gas regulator BPMigas to assign officials to work as vice-president within international oil companies (IOCs).

Indonesia, in a bid to exercise greater control over contract holders, will allow upstream oil and gas regulator BPMigas to assign officials to work as vice-president within international oil companies (IOCs).

The decision, which followed earlier reports of efforts to step up the monitoring of the upstream sector, also coincided with calls for the government to impose a windfall profits tax on IOCs.

BPMigas head R. Priyono, who named four officials to be assigned to holders of oil and gas cooperation contracts (KKKS), said the number of officials will gradually be increased over time.

“They will hold vice-president positions at the KKKSs and will be tasked with bridging the interests of oil and gas companies with ours,” Priyono said after inaugurating the four officers on July 22.

The four vice-presidents, who will represent BPMigas at BP PLC, Total SA, Chevron Corp., and ConocoPhillips, are R.B. Heru Djoni Putranto, Bambang Prabowo, Taslim Z. Yunus, and Mulyani Wahyono.

Priyono, who said BPMigas has yet to decide which officers will be assigned to which companies, added that the government agency would soon name additional vice-presidents to be assigned to other oil and gas companies. “We are planning to inaugurate six vice-presidents by the end of the year,” Priyono said, adding that the officers “will help the KKKSs accelerate the processing of operations and program budget proposals.”

“They will be involved in the formulation of such proposals at an earlier stage. They will also advise companies on what items can be reclaimed as recoverable costs,” Priyono said.

He said oil and gas companies are required to pass their project and budget proposals to three BPMigas deputies, and that processing could take more than 9 months.

The vice-presidents also will provide BPMigas with a greater understanding of how the contract holders conduct their management of national assets, Priyono said.

The announcement follows recent reports that said Indonesia’s Corruption Eradication Commission and BPMigas, were creating a team to evaluate the monitoring mechanisms in the upstream oil and gas industry (OGJ Online, July 22, 2008).

Windfall profits tax

The announcement also coincided with calls for the government to issue a special tax on windfall profits reaped by oil and gas companies.

Marwan Batubara, a member of the Regional Representatives Council (DPD), July 21 said a windfall profit tax for oil and gas firms would be a “fair measure” to help relieve the burden of high gas prices on Indonesians.

“Oil and gas, just like other natural resources, belong to the people. But, it is the people who are suffering from skyrocketing oil prices—[while] with little effort, oil and gas firms are gaining tremendous profits from the hike,” Marwan said.

“If the government applies a windfall profits tax of 50%, our state income will increase by 20.36 trillion rupiahs/year,” Marwan said.

Energy analyst Kurtubi said such a tax would be fair as companies were not enjoying windfall profits due to the caliber of their strategies, investments, or technologies but “merely because of the soaring global prices.”

However, Kurtubi said that such a tax would be best introduced in conjunction with measures designed to create a more conducive investment climate for the industry. “The government must for instance simplify the investment procedures and withdraw the production tax,” Kurtubi said.