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As the government's allocation for its cost recovery fund is
on the rise, the Energy and Mineral Resources Ministry plans to tighten
the cost recovery mechanism by providing refunds for exploration costs
only in producing fields.
The cost recovery fund is a form of incentive provided by the
government to boost investment in the oil and gas sector. Under the
system, the government recovers the money that oil and gas operators
spend on exploration works after the blocks start producing.
However, the ministry's upstream director Priyono said Friday the
ministry sees the current regulation as too burdensome on the
government and will soon revise it.
Under existing regulations, the cost recovery fund is based on the
exploration cost in one entire block, even when some of the oil and gas
fields within the block fail to produce, leaving the government with a
huge sum to pay operators.
One block usually contains numerous oil or gas fields.
The new regulation, Priyono said, would base the calculations of the
cost recovery funds on the exploration money spent only on specific
fields that produce oil or gas.
Priyono said the new regulation would be completed within days.
"The target is for the new system to be included in the contracts of
those 26 blocks," Priyono said, referring to the 26 new blocks the
government plans to offer investors in May.
The new cost recovery system is expected to help control the
government's spending, he added, which over the past three years has
been steadily increasing.
Data from the ministry shows the government paid Rp 7.3 trillion
(US$784 million) in cost recovery in 2005, Rp 7.8 trillion in 2006 and
Rp 8.3 trillion in the first nine months in 2007.
BPMigas financial operation division head Sujaryono told The Jakarta
Post recently the cost for the full-year in 2007 might reach Rp 8.71
trillion.
If calculated by barrel of oil, the government in 2005 paid $11.50 for
every barrel produced by operators, $12.13 in 2006 and $14.00 in 2007.
And the figure, he added, would continue to rise in years to come in
line with intensified exploration activities and high crude oil prices.
Sujaryono predicted the cost would be around $16 per barrel this year.
"But we shouldn't be surprised with the numbers as the country is
intensifying exploration and exploitation activities to meet the
nation's target of a 30-percent rise in oil output by 2009."
The country produced about 954,000 barrels per day of oil last year.
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