Trial “Gross Split

    In front of many stakeholders in the oil and gas sector, Deputy Minister of Energy and Mineral Resources (ESDM) Arcandra Tahar is like a lecturer in a classroom. By scribbling a black marker on flipchart paper, he explained to the audience about the gross split or the distribution of oil and gas revenue based on gross production. This concept will replace the profit-sharing contract model with a cost recovery component or recoverable operating costs.

    Arcandra explained, for an oil and gas working area that has won a tender winner, the government and the contractor who won the tender agreed at the beginning about the amount of profit sharing. He divides it into three stages, namely base split (basic division), variable split (variable or division component), and progressive split (progressive profit sharing). The government has determined the base split as a benchmark.

    So far, in the concept of cost recovery, the oil profit-sharing model is known to be 85 percent for the state and 15 percent for contractors. Meanwhile, gas revenue sharing is 70 percent for the state and 30 percent for contractors. Arcandra illustrates the base split with 70:30, which is 70 percent of the state share and 30 percent for contractors. 

    After the base split is agreed upon, enter the variable split section. The components consist of the type of working area (conventional or unconventional), carbon dioxide content, sulfur content, local content usage, production stages (whether using water, steam, or chemical injection methods), and oil prices.

    If the type of work area is non-conventional, the government provides incentives in the form of additional profit sharing on a scale of 1 to 5 percent to contractors. Likewise, if the CO2 and H2S content are high, the percentage of local content is high, and if the chemical injection method is used to drain the oil, the contractor gets additional incentives for profit sharing. Especially if the price of oil is high, for example above 100 US dollars per barrel, the government will be enlarged.

    Furthermore, for the progressive split, the higher the oil and gas production, the contractor does not get incentives. Then, does the gross split concept guarantee that oil and gas production in Indonesia will increase? Could be, but not the only guarantor. This is Arcandra's explanation. The government plans to start implementing this concept in 2017.

    Currently being prepared for legal protection. However, the government emphasized that the production sharing contract with the cost recovery scheme will be maintained until the contract expires. The Gross split applies to new oil and gas contracts. Why was the profit-sharing contract abandoned? The concept of cost recovery is believed to create inefficiencies.

Blogger Agus Purnomo in SKK Migas

    The calculations are also complicated. It is difficult for contractors to be expected to operate efficiently because they are guaranteed to be reimbursed by the state. The Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) noted that this year alone, the cost recovery figure was US$11.4 billion. Meanwhile, the state revenue is 9.29 billion US dollars and the contractor's share is 3.175 billion US dollars.

    It is true that the contractor's assets that have been paid for in cost recovery become state assets. However, the value of assets in the form of operational equipment will definitely decrease in value. According to Arcandra, the gross split with the above scheme has never been implemented in any country. Now, it's just a matter of proving whether this concept is the best for Indonesia. Let time test it.

Kompas, Page-17, Wednesday, Dec 21, 2016