Govt offers incentives to oil and gas investors

JAKARTA. Government has revised the Government Regulation No 79/2010 on Cost Recovery and Tax Income Treatment on Upstream Oil and Gas in order to jack up oil and gas production.

The revised government regulation offers fiscal and non-fiscal incentives to contractor in conducting exploration. On fiscal, for an example, government covers import value added tax (VAT), import duty, domestic VAT, and property tax during exploration.

Government also exempts contractor from withholding tax over cost recovery of state’s property utilization related to upstream oil and gas sector, as well as  from withholding tax on overhead cost.

According to Minister of Finance Sri Mulyani, the incentive scheme will be regulated under Minister of Finance Regulation (PMK).

In terms of non-fiscal incentive, Sri Mulyani said that under the new policy government will obtain bigger portion of profit sharing if oil price rises significantly.

Taxation is one of the major challenges faced by contractor during exploration amid uncertainty over the exploration results. For an example, to produce 3.5 billion barrel oil equivalent, contractor has to drill at maximum of 500 wells with only 39% of success ratio.

This condition has led the decrease in number of working area during 2011-2015, whereas oil price during the period was very high, at US$100 per barrel.

Care Taker of Minister of Energy and Mineral Resources Luhut Binsar Panjaitan expected that the revised policy will boost investment on oil and gas sector. The revised policy itself has adapted with Law on Oil and Gas and Law on Taxation. According to Luhut, based on Ministry of Energy and Mineral Resources’ record, Indonesia still has 100 billion barrels of oil production potential.

Energy observer at ReforMiner Institute Komaidi Notonegoro said that the revised policy will support upstream oil and gas industry. Komaidi added, before the issuance of the Law No 22/2001 on Oil and Gas government also provided incentives to oil and gas contractor. (Translator: Muhammad Farid)