Govt to remove land, building tax for deep-water explorations

Posted on May 1, 2012

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Rangga D. Fadillah, The Jakarta Post, Jakarta | Thu, 04/12/2012 9:51 AM

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The Energy and Mineral Resources Ministry has requested the Finance Ministry to remove the land and building tax (PBB) for oil and gas explorations in deep water areas in a bid to boost the country’s future production.

The ministry’s director general for oil and gas, Evita Herawati Legowo, said the imposition of the tax would discourage oil and gas companies to explore areas, considering the huge investment required and high risks faced by the companies.

“It will be too heavy for the companies if the government applies the land and building tax in the exploration phase. The Finance Ministry has understood the situation and the decision may be formalized in the form of a ministerial regulation,” she told reporters on the sidelines of the Deep Offshore Forum held by France-based Total EP Indonesie and the Energy and Mineral Resources Ministry in Jakarta on Wednesday.

Upstream oil and gas regulator BPMigas head Raden Priyono said Indonesia’s onshore oil and gas reserves had significantly declined and now it was time for the country to talk about offshore with a depth of more than 1,000 meters.

“In addition to incentives given by the government, we have also tried to accelerate the approval of the plan of development [PoD] for deep water blocks. For instance, we approved the PoD for the Jangkrik field at the Muara Bakau in East Kalimantan in only 15 days, the fastest in history,” he told The Jakarta Post in a recent exclusive interview session.

The government has provided several incentives for deep water projects, including free import duty and a higher split for contractors. If in onshore oil projects the split is 85 percent for the government and 15 percent for contractors, in deep water, the split can be 65 percent and 35 percent.

Currently, there are three deep water projects in Indonesia — an Indonesia Deep Water Development (IDD) project in the Makassar Strait (operated by Chevron Indonesia Company), the Masela block in the Arafura Sea (operated by Japan-based Inpex) and the Jangkrik field (operated by Italy-based ENI Indonesia).

The IDD project comprises four production sharing contracts for Ganal, Rapak, Makassar Strait and Muara Bakau. There are five gas fields developed by Chevron, which are Bangka, Gehem, Gendalo, Maha and Gandang. The Bangka field is expected to begin gas production in 2015, while the production hubs in Gendalo (which will integrate production from Gendalo, Maha and Gandang) and Gehem are estimated to start production in 2017 and 2018 respectively.

The second deep water project is the Masela block. The block is predicted to have a total reserve of 6.05 trillion cubic feet (tcf). A floating liquefied natural gas (LNG) plant will be set up at the block. The first production is expected to be carried out in 2016.

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