Indonesian House wants lower cost-recovery write-offs

Members of Indonesia’s House of Representatives, in a move to head off a potential budget shortfall, have urged the government’s upstream watchdog BPMigas to reduce the cost recovery given to oil and gas contractors.

July 28, 2009

2 min read

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, July 28 -- Members of Indonesia’s House of Representatives, in a move to head off a potential budget shortfall, have urged the government’s upstream watchdog BPMigas to reduce the cost recovery given to oil and gas contractors.

“For now, BPMigas should limit the amount of cost recovery,” to $10 billion from $11.05 billion said Suharso Manoarfa, vice-chairman of the House’s budget committee, in a hearing with the government and the central bank.

The move aims to decrease the budget deficit in case the Indonesian Crude Price (ICP) falls to $58/bbl at yearend or oil lifting is lower than the 960,000 b/d level set in the planned revision of the 2009 budget.

“If the ICP is $58/bbl [during this year’s second half], there will be a 9 trillion rupiah deficit in state revenue,” said Suharso, who also noted that during January-June, oil production reached 953,000 b/d and will need to reach 967,000 b/d for the remainder of the year to achieve the government target of 960,000 b/d for 2009.

Finance Minister Sri Mulyani Indrawati said she would ask the energy and mineral resources ministry to balance the amount of cost recovery spent and the amount of oil sold in order to prevent a negative net income in oil and gas revenue.

In April, the Indonesian government drafted new rules aimed at reducing national expenditure by redefining some cost components as downstream instead of upstream.

At the time, Indonesia's energy and mineral resources minister Purnomo Yusgiantoro said, "We hope that this will decrease spending on cost recovery in our state budget (OGJ, Apr 27, 2009, p. 37).

Contact Eric Watkins at [email protected].