This is the Weakness of Old Contracts
SKK Migas Chairman Dwi Soetjipto
DWI Soetjipto pays special attention to unsolved problems ahead of the management transfer of the Rokan Block from Chevron Pacific Indonesia to Pertamina. The Upstream Oil and Gas Special Regulatory Task Force (SKK Migas) chief, who was a chief executive officer at Pertamina, is reminded of the slow transition period of Mahakam Block’s, which lead to plummeting production after Total E&P Indonesie’s departure. “This is one of the weaknesses of the old production sharing contract. It does not include transition process such as what are the rights and obligations of old contractors and new contractors,” Dwi told Tempo’s Retno Sulistyowati and Khairul Anam on Thursday, July 16.
How is Rokan Block’s transition progressing?
We continue to have discussions. We list down what items Pertamina would need, as well as design the program. We hope Chevron will continue to invest even though they only have months left. This is important to maintain production so that by the time Pertamina enter (Rokan), the lifting volume would not fall too deep. The problem with old wells is natural declines. To slow the decline, we need to invest, drill additional wells.
How to get Chevron to invest?
The key is in the legal system. We are asking support from the Attorney General’s Office. Once we obtain the numbers, the SKK Migas and CPI will sign an agreement. When the mechanism is approved, we would need government’s approval. And then, there would be a sort of amendment to the production sharing contract (PSC). The scenario is expected to bridge the problem-solving efforts for abandonment and site restoration (ASR) as well as oil contamination.
What are the crucial points for the legal considerations needed?
The first is how to speed up investment (returns) without breaking regulations. In normal PSCs, with a depreciation pattern, it takes up to five years. The problem is, we do not have much time, there’s only a year left. The scenario must be approved by the government. The second is about CPI’s exit pattern. Because, complaints of oil-contaminated land (TTM) by the community could arise later, given its vast area. If the complaints were made before, it will have already been verified. This also needs escort from the legal aspect.
What options have been agreed upon?
Some are still being discussed, such as the calculation of the oil-contaminated land.
What are the liabilities for that?
In the past, when building road infrastructure, the government allowed the use of crude oil to be watered on hardened land. However, in recent years, the rules forbid it. What is the amount or volume of contaminated soil? CPI may obtain a certain number while others get different figures. This becomes a dispute, whilst the funds for it must be immediately reserved, so that later, when Pertamina enters (the Rokan Block), there would not be any problem. This include mine recovery costs that were not previously required in the PSC—it must also be reserved by CPI or the government in accordance with the fiscal term cost recovery. We must not allow things to be like it was with Total E&P Indonesie and others, when there was no obligation to reserve these costs.
Total did not have a back-up fund for it?
That’s why. What about (the companies) that have already left? Because this one is still here, we can still fix this. We hope that CPI, if they have investment programs that can run, would complete it.
Who audits the need for these funds?
It has started. The auditor is the environment and forestry ministry, collaborating with auditors to assess the volume of contaminated land, as well as its location. The costs will be calculated together with the SKK Migas. We have a unit cost, called owner’s estimate. That is the number that we will use as a benchmark for the reserved fund.
What about other PSCs? Many are expiring.
That’s correct. In the PSC, there is no obligation for ASR, TTM. These measures are highly necessary, how to ensure old contractors continue to invest during their last years of contract. What is the investment return scheme. We need to find a way out. Right now, we still have concerns. Maybe because this is something new. But if this is successful, with support from the authorities, we can use it as a model to refer to when finalizing transition periods in other concession areas.