PGN Owns and Operates 78% of Gas Pipes in Indonesia

    PT Perusahaan Gas Negara (Persero) Tbk (PGN) continues to build its natural gas pipeline infrastructure. Currently, the length of natural gas pipelines owned and operated by PGN reaches more than 7,200 kilometers (km). This amount is equivalent to 78 percent of the downstream gas pipelines throughout Indonesia.

    PGN's Corporate Secretary, Heri Yusup, said that to date, the total length of pipelines built and operated by PGN has reached more than 7,200 km. This number is an increase compared to the total length of pipe at the end of 2014 which reached 6,161 km.

"As a National Gas Company, PGN will continue to develop natural gas infrastructure to expand the use of natural gas for the community," said Heri.

    Starting this year, until 2019 PGN will add more than 1,680 km of natural gas pipeline infrastructure. The pipeline project is spread across various regions, including the Duri-Dumai open access transmission pipeline project, the Batam (Nagoya) WNTS-Pemping distribution pipe, and natural gas distribution pipelines in existing areas and other new areas.

"We have been doing pioneering by opening new areas that have not been touched by natural gas so that more areas can enjoy the benefits of energy from natural gas," said Heri.

    Heri said that PGN's natural gas infrastructure was built using its own funds.

"Everything was built with PGN's own investment without relying on the State Budget (APBN),".

    Heri Yusup added that the PGN gas pipeline in 2019 is targeted to reach 8,656 km. The addition of this gas infrastructure can increase the ability to utilize natural gas by as much as 1,902 million cubic feet per day (MMSCFD). In 2015, PGN was able to distribute natural gas reaching 1,591 million cubic feet per day (MMSCFD).

"From the distribution of PGN's natural gas to customers, it creates savings for the nation of Rp. 88.03 trillion per year," said Heri.

    Until now, PGN has never stopped building natural gas infrastructure in various regions in Indonesia. The main objective is one, namely so that natural gas, especially domestically produced, is environmentally friendly, efficient and safe and can easily be enjoyed by the wider community.

"For example, this year alone PGN has completed the construction of a gas pipeline in Batam along 18.3 km, then in Pasuruan, East Java PGN has completed the construction of a 15 km gas pipeline on the Kejayan-Purwosari section. Then there is another 27 km Jetis-Ploso segment. km, another 30 km in Kalisogo-Waru, East Java, "Heri detailed. PGN is the only business entity that distributes natural gas to various customer segments.

    Starting from households, MSMEs, hospitals, malls, hotels, restaurants, industry, power plants to transportation. PGN's natural gas has been enjoyed by more than 116,600 household customers. In addition, 1,900 small businesses, malls, hotels, hospitals, restaurants, and restaurants, as well as 1,580 large-scale industries and power plants.

    PGN also continues to encourage efforts to diversify vehicle fuels from BBM to natural gas. Currently, PGN has operated 7 Gas Refueling Stations (SPBG), the 8 partner SPBGs, and the 5 MRU (Mobile SPBG). PGN Dear Ibu PGN is ready to add 110,000 household natural gas connections in the next 3 years. Currently, PGN's natural gas has been enjoyed by people from Sumatra to Papua.

"We have a PGN Sayang Ibu program, this program aims to increase the number of households using natural gas energy. From this year to 2019, we will add 110,000 household gas connections, ”said Heri.

    The additional 110,000 household gas connections were financed from PGN's own investment, without relying on funds from the government or the state budget.

"It is also the responsibility of PGN as a State-Owned Enterprise and National Gas Company in Indonesia, to spread the use of natural gas that is efficient, environmentally friendly, easy and safe," said Heri.

Koran Sindo, Page-11, Thursday, Oct 20, 2016

ESDM looks at the budget for the new oil and gas project

    Oil and gas contractors who will submit budgets for new oil and gas field projects cannot sleep soundly. The Ministry of Energy and Mineral Resources (ESDM) will examine in detail the budget and proposed work program. Understandably, at this time, the Ministry of Energy and Mineral Resources is making savings on the cost recovery of oil and gas contractors on new oil and gas projects.

    Deputy Minister of Energy and Mineral Resources (ESDM) Arcandra Tahar said that the efficiency of the cost of recovery will be imposed on the development plan or plan of development (POD) of the newly proposed oil and gas project.

the IDD Chevron

"The upcoming PoD-PoDs are for example the IDD Chevron, Masela Block, and East Natuna Block. We will see the size of the new ones and reduce the costs," said Arcandra.

The Masela Block

    According to him, the government will reduce the cost recovery from the POD that will be proposed by oil and gas contractors, namely in terms of capital expenditure (capex) and operational expenditure (opex).

"We can reduce cost recovery with capex and that is the component, so we will see," explained Arcandra.

    Meanwhile, the POD that has already occurred will not be recalculated. Arcandra said the government must also be able to maintain investor confidence. That is why the government will continue to respect existing contracts.

"It will not be changed, we will respect the existing one first, because it has been agreed upon, because the project has already started. How can I change it again? Unless there is an administrative error there,"

    Denie S. Tampubolon, Senior Vice President of Upstream Business Development at PT Pertamina, has not been able to comment on the efficiency of cost recovery for the East Natuna project. The East Natuna project value reaches US $ 24 billion.

    Inpex Corp's Senior Manager Communication and Relations Usman Slamet and Chevron's Corporate Communication Manager, Prasasti Asandhimitra, have not yet responded to the confirmation that there is a need to change capital expenditures in the Masela and Chevron IDD projects if later submitted. 

    Currently, Inpex has not submitted a proposal to revise the Masela project, but the estimated investment is US $ 15 billion, while the government has not approved the Chevron project with an investment of up to US $ 7 billion.

    Fahmi Radhi, an Energy Observer from Gajah Mada University, suspects that so far, cost recovery has been the target of rent-seeking through mark-ups and other modes, namely increasing the purchase price of drills, changing drill bits, which can still be used. Then, another mode is to include various expenses that are not supposed to be a cost recovery component.

"The rent-seeking is carried out by companies that obtain sub contracts in the transportation of equipment needed for drilling,".

    The government can start thinking about changing the production sharing contract (KPS) scheme to reduce the total cost recovery to a ratio of 60:40, by reducing the cost recovery borne by the government by up to 50%.

Kontan, Page-14, Thursday, Oct 20, 2016

Hundreds of Oil and Gas Contracts Received Special Treatment

    The government guarantees that oil and gas Cooperation Contract Contractors (KKKS) are free from levies and taxes (assume and discharge) during their business activities in Indonesia. This government plan will be included in the revision of Government Regulation Number 79 of 2010 concerning Refundable Operating Costs.

"There has been an agreement with the Deputy Minister of Finance to apply the assume and discharge principle," said Teguh Pamudji, Secretary General of the Ministry of Energy and Mineral Resources.

    However, not all contractors will receive this special treatment. Only contractors who signed a cooperation contract prior to the regime of Law Number 22 Year 2001 regarding Oil and Gas will receive this privilege.

    The principle of assume and discharge requires the contractor to obtain certainty for the results of oil and natural gas without deducting levies and taxes. Fiscal provisions also apply nail down or are not affected by policies issued by the government.

    Teguh said that currently there are 288 oil and gas cooperation contracts. Of that total, five contracts were signed after Government Regulation No. 79/2010 was enacted. The result is that only 283 companies will get the assume and discharge principle. 

    Meanwhile, the five companies that signed contracts after the Government Regulation on Operating Costs did not assume and discharge. In exchange, the government will provide a number of incentives, such as tax exemptions.

    The ministry also proposes more various revenue-sharing options, such as gross splits and sliding scales. The goal is to make the contract more flexible to the economy in the field.

"The language is not assume and discharge, but tax incentives. The economy is almost the same, "said Teguh.

    Regarding cost recovery, Teguh said, the government must be flexible. Because, if the rules are made too rigid, the discovery of new reserves will be hampered.

"The contractor is worried that the costs will not be reimbursed".

Luhut Binsar Pandjaitan

    Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan said the draft revision of Government Regulation Number 79 Year 20 10 had been submitted to the Coordinating Minister for the Economy for signature. Luhut said the revision stated that the Ministry of Energy would grant the authority to provide incentives to oil and gas investors. 

    Previously this authority was in the hands of the Ministry of Finance. In the revision of no tax in the exploration period, fiscal incentives can be provided for the exploitation period with the project economy. According to Luhut, in addition to fiscal incentives, the Minister of Energy can provide non-fiscal incentives.

Energy and Mineral Resources (ESDM)

Minister of Energy and Mineral Resources (ESDM) Ignasius Jonan said he would continue the plan of the Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan to reduce cost recovery. Director of the Indonesia Petroleum Association Marjolijn Wajong complained about the fiscal obligations that have been implemented by the government, such as taxes and levies.

Koran Tempo, Page-14, Wednesday, Oct 19, 2016

National Natural Gas Transmission Pipeline Achieved only 20% of the Target

    The national natural gas transmission pipeline only reaches 2,625 or 20% of the target. PGN Corporate Secretary Heri Yusup said the lack of gas infrastructure has hampered allocations. As a result, only 52% of the gas produced is consumed domestically, while the rest is still exported to increase foreign exchange.

    PGN Corporate Secretary Heri Yusup admitted that currently domestic gas demand is still very low, so producers have opted to export. Moreover, gas is not economical if it is stored for too long, so the gas that has been produced must be distributed as soon as possible. Heri said that if you want to achieve the maximum utilization rate of natural gas, no later than 2024, an additional 15,000 km of gas transmission pipelines and 14 liquidication projects must be built.

    Apart from infrastructure, the target market and the exact amount of demand must also be considered. Currently, the total natural gas pipeline that has been built has reached 13,500 km. About 78% of the existing gas pipelines were built by PGN and the rest are owned by a subsidiary of PT Pertamina, PT Pertagas and 63 units of traders. 

    According to him, the last gas infrastructure to be built is the 1,200 km South Sumatra-West Java (SSWJ) pipeline. Meanwhile, in the 2016-2019 period, PGN will add a natural gas pipeline infrastructure of 1,680 km. The pipelines to be added are the Duri-Dumai-Medan open access transmission, Muara Bekasi-Semarang, the Batam WNTS-Pemping distribution pipe, and several other areas.

    In 2019, the length of PGN's gas pipeline was 8,656 km and natural gas that could be channeled reached 1,902 mmscfd. Heri estimates that by doing so the national savings will reach IDR 88.03 trillion per year. This year PGN has also completed the construction of a gas pipeline in Batam along 18.3 km, Kejayan-Purwosari along 15 km, Jetis-Ploso along 27 km, and Kalisogo-Waru, East Java along 30 km. 

    PGN Corporate Secretary Heri Yusup said the lack of gas infrastructure has hampered allocations. As a result, only 52% of the gas produced is consumed domestically, while the rest is still exported to increase foreign exchange.

    Apart from infrastructure, the target market and the exact amount of demand must also be considered. Currently, the total natural gas pipeline that has been built has reached 13,500 km. About 78% of the existing gas pipelines were built by PGN and the rest are owned by a subsidiary of PT Pertamina, PT Pertagas and 63 units of traders. According to him, the last gas infrastructure to be built is the 1,200 km South Sumatra-West Java (SSWJ) pipeline.

Investor Daily, Page-9, Wednesday, Oct 19, 2016

The Bojonegoro district government plans to clarify about the oil production fund

    The Bojonegoro Regency Government, East Java, plans to clarify by asking the Minister of Finance for information regarding the decline in revenue sharing funds (DBH) for oil and gas from a target of Rp 1.4 trillion to Rp 910 billion.

"We will clarify the reduction in oil and gas DBH revenues directly to the Minister of Finance," said Head of the Regional Revenue Service of the Bojonegoro Regency Government, Herry Sudjarwo.

    He is pessimistic that this clarification step will succeed after seeing the condition of the State Budget (APBN) which has not improved.

"If you look at the state budget conditions this year, it is unlikely that our regions will be able to obtain additional Oil and gas Production Sharing Funds,".

    He mentioned that the Oil and Gas Production Sharing Fund received by the region this year from the Rp. 910 billion target was only around Rp. 600 billion, as of October. Looking at the budget year with only two months remaining, it is unlikely that there will be additional oil and gas DBH transfers from the Government.

"We do not know how to regulate the budget allocation in the Regional Revenue and Expenditure Budget (APBD) which was forced to revise several times due to the decline in oil and gas DBH revenues,".

    He explained that the region last year received oil and gas revenue sharing funds amounting to Rp. 812.7 billion, but in the calculation it turns out that there is still an excess of Rp. 59 billion which is calculated this year.

    Thus the advantage is that the revenue for oil and gas revenue sharing last year was calculated this year so that the target for oil and gas revenue sharing is getting smaller. "The target for oil and gas revenue sharing funds will be reduced, plus there will be cuts in last year's oil and gas revenue sharing fund channel,".

    He added that the target of obtaining land and building tax (PBB) for oil and gas land which was targeted at Rp. 326 billion was also not realized because the acquisition was only Rp. 151 billion. The PBB obtained from oil and gas land, from the PBB land from an old oil well field in Kedewan District, Malo, Cepu Block oil field in Gayam District and Sukowati field, in Bojonegoro City District and Kapas District.

"Yes, the reality is that PBB of land for oil and gas is not on target," the reason for not achieving the acquisition of PBB for land for oil and gas.

    Regent of Bojonegoro Suyoto, previously stated that the oil and gas DBH revenue can no longer be used as a guideline in the preparation of the APBD because it often experiences fluctuations which are influenced by world oil prices and production.

Investor Daily, Page-9, Wednesday, Oct 19, 2016

Cost Recovery will be cut by 30%

To attract investment in the oil and gas sector, the government will reduce cost recovery by up to 30%. The plan to reduce cost recovery is being calculated by the Minister of Energy and Mineral Resources (ESDM) Ignasius Jonan.

Luhut Binsar Pandjaitan

Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan said cost recovery could be reduced because world oil prices were weakening. The target of reducing cost recovery this year is the US $ 10.4 billion and next year is lower than that. I am optimistic that Ignasius Jonan and Arcandra Tahar (Deputy Minister of Energy and Mineral Resources/ESDM) can make it better, "said Luhut.

Luhut said cost recovery was reduced by 30% for projects whose contracts have not yet started. The reduction in cost recovery is only about 5% for projects that have signed contracts. He hopes that the cost recovery cut will attract investors to invest in the oil and gas sector.

"Now, foreign investors come with technology and competence. We have to fight with competence in our field, we want to reduce cost recovery.

The government is targeting the revision of Government Regulation Number 79/2010 concerning the cost recovery of oil and gas investment to be completed soon. Discussions on the revision of Government Regulation number 79/2010 between the government and oil and gas players such as the Indonesian Petroleum Association (IPA) have found an agreement.

Secretary-General of the Ministry of Energy and Mineral Resources, Teguh Pamudji, added that the plan to cut cost recovery has been agreed with Commission VII of the House of Representatives (DPR) that the cost recovery in 2017 should be below the US $ 10 billion. He said the plan was indeed being studied. However, he could not reveal further about the study. ESDM Deputy Minister Arcandra Tahar explained that there is still room for cutting cost recovery.

He said, for the signed oil and gas contract, there will be discussions with the contractor. From this discussion, we will find out what parts can be suppressed. He did not want to mention that the cost recovery could be cut by up to 5%.

"The team will see again which parts can be reduced,".

Arcandra revealed, for oil and gas projects that have not yet been signed, such as the Masela Block and East Natuna, have more room to reduce cost recovery. But again he did not want to reveal what the cut was. Chairman of the Indonesian Employers Association (Apindo) in the EMR sector Sammy Hamzah supports the government's plan to reduce the cost recovery in the oil and gas sector by up to 30%. 

He said the reduced cost recovery was able to attract investment interest because the oil and gas contractor's share was better. Sammy said that efforts to reduce cost recovery costs could logically be realized.

This is in line with the low world oil price. This condition causes the cost of supporting services in the oil and gas sector to also decrease. He said that the oil and gas contractor together with the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) must sit together in renegotiating existing contracts.

Blogger Agus Purnomo in SKK Migas

Head of SKK Migas, Amien Sunaryadi, revealed that the high-cost recovery of Cooperation Contract Contractors (KKKS) has been caused by vendor companies who have contracted with KKKS.

"Currently, there are 139 KKKS companies that have contracted with SKK Migas, and I see that the cost recovery is uncontrollable," said Amien.

According to Amien, the incident was caused by each KKKS company using a third party (vendor) in working on oil and gas drilling.

"If you want to drill, it is not the KKKS that will drill, but the KKKS will make a contract with the drilling company. Likewise, if you need pipes, the KKKS will not make the pipes, the KKKS will sign a contract with the pipe supplier. If the KKKS wants to build buildings, facilities, wants to build roads, wants to buy ships, wants anything, it is not the KKKS that builds them. KKKS buy and sign contracts with vendors, ”said Amien.

Amien said, there are thousands of contracts between KKKS and vendors. He admitted that his party had never checked the truth of these contracts.

"The number of vendors is more than 1,500. So there are tens of thousands, maybe hundreds of thousands of contracts between KKKS and vendors. Moreover, up-vendor companies, ".

The former deputy chairman of the Corruption Eradication Commission (KPK) said that each KKKS has so far entered a cost recovery figure based on the amount paid to the vendor. And this amount depends on the contract between the KKKS and the vendor.

"Therefore I can confirm that checking only up to KKKS is useless. If this is not checked properly, then no one can be sure that this contract is efficient. Especially if the contract with the vendor is further spelled out with the possibility that the vendor will contract with the sub-vendor. Then, it could be deeper into sub-vendors with sub-vendors. 

Investor Daily, Page-1, Wednesday, Oct 19, 2016

300 Oil and gas contracts Receive Tax Incentives

About 300 oil and gas cooperation contracts will receive tax relief incentives. Secretary-General of the Ministry of Energy and Mineral Resources (ESDM) Teguh Pamudji said the revision of Government Regulation No. 79/2010 concerning Refundable Operating Costs and Income Tax Treatment in the Upstream Oil and Gas Business Sector will guarantee incentives for these 300 contracts. 

One of the incentive requirements is that the cooperation contract is signed prior to the enactment of Government Regulation no. 79/2010. With the revision of Government Regulation no. 79, the assumption and discharge concept will be applied, which means that the calculation of the state and contractor's share includes the tax component.

Thus, the contractor is no longer subject to additional taxes. In fact, oil and gas contracts should have been signed after the issuance of Law no. 22/2001 on oil and gas, and Government Regulation no. 79/2010 is still subject to additional tax. For the cooperation contracts signed before the oil and gas law and after the oil and gas law, but before the government regulation was enacted, assume and discharge still applies, ".

He detailed that there were around 130 cooperation contracts signed before the issuance of the Oil and Gas Law, such as Blok-Rokan in Riau. In addition, 170 contracts were signed prior to Government Regulation no. 79/2010 is published like the Cepu Block in East Java.

According to him, the government also encouraged oil and gas contracts to be signed after the issuance of Government Regulation no. 79/2010 can get tax breaks. Teguh estimated that there were about four oil and gas contracts signed after 2010 or after the government regulation on cost recovery was issued. He explained that contracts signed after 2010 could not apply the assume and discharge scheme through the revision of Government Regulation No. 79/2010. This is because the provision of tax facilities for the types of local taxes and levies cannot be given because the two types of taxes are not regulated in the regulation.

Teguh said that the implementation of assuming and discharge will facilitate the calculation of the project's economy because contractors are no longer subject to additional taxes that arise for upstream oil and gas activities. However, he considered it should have a positive impact on investors. Not everything is given. There are regional taxes and levies that are not covered.

Blogger Agus Purnomo in SKK Migas

Director of Financial Control for the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas), Parulian Sihotang, said that until now there has not been any discussion regarding the mechanism for tax returns or refunds after the revision of Government Regulation No.79/2010.

Bisnis Indonesia, Page-30, Wednesday, Oct 19, 2016

Bojonegoro Regency Government To Clarify Oil Production Sharing Funds

The district government of Bojonegoro, East Java, plans to clarify by asking the Minister of Finance for information regarding the decline in Revenue-Sharing Funds (DBH/RSF) for oil and gas from a target of IDR 1.4 trillion to IDR 910 billion. Head of the Regional Revenue Service of the Bojonegoro Regency Government, Herry Sudjarwo, is pessimistic that this clarification step will be successful, after seeing that the state budget has not improved. He said that the oil and gas RSF received by the region this year from the target of Rp 910 billion is still around Rp. 600 billion, as of October.

Looking at the budget year with only two months remaining, it is unlikely that there will be additional transfers of oil and gas RSF from the Government. We do not know how to regulate budget allocations in the Regional Revenue and Expenditure Budget (APBD) which have had to revise several times due to lower oil and gas RSF revenues. He explained that the region last year received an oil and gas RSF of Rp. 812.7 billion, but in the calculation, it turns out that there is still an excess of Rp. 59 billion which is calculated this year.

Thus, the excess revenue from oil and gas RSF last year was calculated this year so that the target for oil and gas RSF recovery is decreasing. The oil and gas RSF target is to decrease, plus there is a cut in the remaining oil and gas RSF channel from last year. He added that the targeted land and gas PBB acquisition target of Rp. 326 billion was also not realized because the acquisition was only Rp. 151 billion.

Bhirawa, Page-8, Wednesday, Oct 19, 2016

67 Work Areas Become the Backbone of National Oil and Gas Production

Indonesia's oil and gas production currently depends on 67 Working Areas (WA) that have entered the production phase. SKK Migas Head of Public Relations Taslim Z. Yunus said, as of June 2016, there were 289 oil and gas CAs in Indonesia. Of these, the development plan for 85 oil and gas CAs has been approved and has entered the exploitation phase. Meanwhile, 204 oil and gas CAs are still in the exploration phase.

"Of the 85 exploitation WA, only 67 were producing WA, while the other 18 WAs were still under development, said Taslim.

According to Taslim, the burden of the 67 productions WA is heavy considering that most of them are old fields that have been in production for decades.

"As little as 67 WA are disrupted, national production will be affected," said Taslim.

Taslim added, to strengthen national oil and gas production, stakeholders need efforts and support so that other WA that are still in the exploration and development phase can immediately proceed to the production phase. The government holds an auction for oil and gas in WA every year. After the government determines the winner, SKK Migas as the government representative will sign a cooperation contract with the winning contractor.

Activities began with exploration for commercial oil and gas reserves. If successful, the contractor will prepare a development plan that must be approved by the Minister of Energy and Mineral Resources. After approval is obtained, activities can proceed to the development and production phases. 

All upstream oil and gas activities from exploration to production are supervised and controlled by SKK Migas. This supervision and control aim to maximize the results of upstream oil and gas business activities for the welfare of the people.

Surabaya Pagi, Page-7, Tuesday, Oct 18, 2016