Abstract
This article explains the current significant change in the business activities of the Oil and Gas Industry which Indonesia is experiencing. Production Sharing Contract (PSC) has been one of the mechanisms to flourish Indonesia's Oil and Gas Industry. It creates good cooperation and understanding between the State and the Contractors. However, Cost Recovery PSC, although long-established, has been generating a lot of problems. These problems were mounting up to the point where changing the financing scheme of the PSC seemed to be more feasible rather than creating policies that would stop the Contractors from asking for reimbursement. This article will explore whether the government's shift from Cost Recovery PSC to Gross Split PSC is a necessity or a premature move. The result of this research shows that the change is both a necessity and a premature move. On one hand, it is a necessity because the deterioration of the state revenue is worrying. On the other hand, it is a premature move because concrete regulations do not follow this shift, and it discourages the Contractors.Keywords:Regulated Industries, Oil and Gas, Production Sharing Contract, Cost Recovery; Gross Split; Indonesia.JEL Classification: K230DOI: https://doi.org/10.32479/ijeep.9024
Highlights
The Oil and Gas Industry in Indonesia has been facing a great dilemma in regards to the changing of the production sharing contract (“PSC”) scheme from the cost recovery scheme to the gross split scheme
As research has shown that the natural resources revenue in the 2016 State budget plan has decreased to 59.7% leaving much to be desired from the cost recovery PSC
Because of the Ineffectiveness of the cost recovery PSC itself, but gross split PSC offers several things that would advantage Indonesia’s Oil and Gas Industry, such as the certainty of the value of the profit-sharing of the Oil and Gas at the beginning of the contract
Summary
The Oil and Gas Industry in Indonesia has been facing a great dilemma in regards to the changing of the production sharing contract (“PSC”) scheme from the cost recovery scheme to the gross split scheme. Recently it is reported that Indonesia’s oil reserves are expected to run out in 11 years (Yuniza et al, 2016), revenue from oil and gas still has a vital role in the state budget. It can be considered as a premature move in the sense that this monumental shift has rocked the oil and gas industry, and there were doubts from the Contractors about this new profit-sharing system. These doubts were seen because the government has not yet introduced any new regulations or law in order to complement the Gross Split financing scheme in the timely manner. At the end of this article, the authors will decide whether the application of the gross split mechanism constitutes the right step for the future of Indonesia’s Oil and Gas Industry
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