Indonesian PSC - WordPress.com

Report
M81GED
Petroleum Economics
FTP: First Tranche Petroleum
First Tranche Petroleum: FTP is basically having the same concept as
royalty but it is split based on the government shares and contractor
shares. (20% of Gross Prod)
Investment Credits
Investment Credit: cost recoverable but it is subject to tax (17%-20% of
gross production. IC applies only to production facilities such as
platforms, pipelines and processing equipment.
Cost Recovery
The amount of expenditures such as costs of explorations,
developments, and operations could be recouped by the contractor out
of the Gross Revenue.
Domestic Market Obligation
Domestic Market Obligation: Obligation to sell the oil for
domestic needs. (25% of Contractor share)
Concessionary (prior 1960)
Constitution No.44/1960
Working Contract Era (1960-1965)
•
•
•
•
•
•
All foreign oil & gas companies  contractor
Risk and management  the contractor
Operating activities funded by the contractor
Term of the contract is 20 years
Shares was based on the net income 60%/40%
DMO 25% of their shares with $0.2/bbl as a fee
PSC 1st Generation 1965
• Shares was based on the gross production
(volume oil/gas)
• All the oil and gas
reserves in Indonesia
belongs to the
Government
• The petroleum
activities is only done
by the Gov.Institution
• Mining Minister may
appoint contractor to
conduct the activities
that could not be done
by the Government
Institution.
 The basic constitution
is the 1945 Constitution
“all the resources under
the states belongs to the
states and shall be used
to the greatest benefits
of the people
- First Generation (1967-1978)
• There was unclear taxation system in Indonesia. The
tax paid by the IOC was not considered by the USA as
tax deductible (the first PSC was IIAPCO 
Independence Indonesian American Oil Company)
- Second Generation (1978-1990)
• The significant decrease in oil price (because of the
economic recession in 1980’s) drove the government
to change the PSC terms
- Third Generation (1990-current)
PSC 1st Generation (19651976)
Description
PSC 2nd Generation (19761988)
PSC 3rd Generation (1988current)
FTP
None
None
10% - 20%
Cost Recovery
Ceiling
40%
100% (no ceiling)
80% (due to FTP)
Investment Credit
None
20%
17% - 20%
DMO
DMO was defined as 25%
of equity oil at $0.2/barel
25% of equity oil, full price for
the first 60 months and
$0.20/barrel there after
25% of equity oil, full price for
the first 60 months and 10%
of export price there after
65%/35%
85%/15%
85%/15%
70%/30% or 65%/35%
70%/30% or 65%/35%
Equity to be Split
Government /
Contractor
Oil
Gas
PSC 2nd to 3rd Generation : The significant decrease in oil price
(because of the economic recession in 1980’s) drove the
government to change the PSC terms.
PSC shares: Shares was based on the gross
production (volume oil/gas)
First Tranche
Petroleum: FTP is
basically having the
same concept as
royalty but it is split
based on the
government shares
and contractor shares.
(10%-20% of Gross
Prod)
Investment
Credit: cost
recoverable
but it is
subject to tax
(17%-20% of
gross
production. IC
applies only to
production
facilities such
as platforms,
pipelines and
processing
equipment.
Gross Production
(-)
(-)
Investment Credit
FTP
(-)
Cost Recovery
(+)
Equity Oil to be Split
Gov. Share
Contractor Share
(+)
Domestic Market
Obligation: Obligation
to sell the oil for
domestic needs. (25%
of Contractor share)
(-)
DMO
(+)
(+)
DMO
Fee
Taxable Income
Income Tax
Government Take
(-)
(+)
(-)
Contractor
Take
(+)
FTP prior to 2010
10%
15%
depends on the Contract
20%
The more remote area, the more difficult to be
developed, the smaller FTP will be applied.
FTP is split based on the % of the shares but for
some contracts they don’t split the FTP.
The current PSC now only 20% FTP.

Contract A vs Contract B




Will be calculated beginning the Calendar
Year, asset is PIS with monthly depreciation
for the Initial Calendar Year
The method used is Declining balance
method
Based on individual asset
Full depreciation at the end of the individual
asset’s useful life
2 Group of Assets (based on Taxation system in Indonesia)
a.
b.
Group 1  50% : useful life 5 years such as
automobile, truck, buses, aircraft, construction
equipment, Furniture & Office equipment
Group 2  25% : useful life 10 years such as
construction utilities and auxiliaries, platform
and storage plant, construction housing and
welfare, Production facilities, Vessels, Barges,tug
and similar water transportation equipment,
drilling and production tools, equipment and
instruments.
Sections
Descriptions
I
Scope and Definitions
II
Term: Term of Commerciality of Contract Area
III
Exclusion of Area: Relinquishment of Area
IV
Work Program and Budget Expenditures
V
Rights and Obligations of the Parties
VI
Recovery of Operating Costs and Handling Production
VII
Valuation of Crude Oil and Natural Gas
VIII
Compensation, Assistance, and Production Bonus
IX
Payments
X
Title of Equipment
XI
Consultation and Arbitration
XII
Employment and Training of Indonesian Personnel
XIII
Termination
XIV
Books and Accounts and Audits
XV
Other Provisions
XVI
Participation
XVII
Effectiveness

At least 3 months prior to the beginning of
each calendar year, or at such other times as
otherwise mutually agreed by the Parties,
Contractor shall prepare and submit for
approval BPMigas (now SKK Migas) a Work
Program and Budget of Operating Cost for
the Contract Area setting forth the Petroleum
Operations which Contractor purposes to
carry out during the ensuing Calendar Year.
Every 3 months the Contractor should establish
this FQR to show the progress of the operation.



Conducted by Government
To ensure that the Recoverable Cost recorded
by the Contractor is recorded and reported
correctly.
Audit is conducted for Contractor that is
classified in the production phase.

The goal of Petroleum Fiscal System is to attract
investments.
◦ Instability in the fiscal system in Indonesia affect the
investment climates
◦ Tough PSC terms in Indonesia leads the moral hazard of the
company (such as Cost Recovery)
◦ This leads Indonesia create many new regulations come
from other regulators which are not consistent with PSC
signed raises the disillusions among the companies.





Executive Agency for Upstream Oil and Gas Business Activities:
SKKMigas (before BPMigas) is responsible for monitoring
implementation and compliance with existing PSCs
BPMigas revised the Work Procedure Manual Supply Chain
Management in 2009 for PSCs (current issue: suspense
account)
Indonesian Taxation Government Institution gets involved in
upstream industries (such as changing in Land Tax
regulation)
Government of Indonesia’s Financial and Development
Supervisory Board (BPKP), Indonesian Government Audit
Institution (BPK) (related to Sunk Cost Audit)
Bank of Indonesia (export sales from this industry ,
must deposited in Bank of Indonesia)
Thank you
P.S: I am a student as you are.. it means I’m still learning like you are
Fasting month is coming, I am sorry for the
mistakes I’ve done , and happy fasting month
for you guys who’ll celebrate Ramadhan!

similar documents