Indonesia To Clarify Oil And Gas Cost Recovery Rules
Monday, February 22, 2010
The Indonesian government is to issue a decree specifying the exploration and
development costs able to be recovered by oil and gas companies in the country,
but it has emphasized that it will not impose a cap on those recoveries.
As Indonesia’s oil industry has recently seen reduced investment, declining
production and falling income tax revenues, the Finance Minister, Sri Mulyani
Indrawati, has therefore tried to be clear that the new decree’s objective
will be the creation of certainty for investors within the industry’s
Cost recovery by oil companies is an integral part of the initial years of
those contracts, and it has been claimed that companies have, in the past, claimed
recovery for extraneous expenditures, not related to oil exploration and development.
It is expected that the decree will therefore make clear what operating costs
can be utilized to calculate recoveries and tax. The government has already
provided a list of non-recoverable costs, including labour costs, and the cost
of expatriates and legal and tax consultants.
Sri Mulyani Indrawati has also emphasized that the government will not cap
the recovery of allowable expenditure. While there may be a limit on costs recoverable
in a single year, allowable expenses would then be able to be carried forward
to subsequent years.
The decree can also be expected to make it clear that costs recoverable under
the production-sharing contracts will include not only corporate income tax,
but also customs and regional taxes.