As the current administration emphasizes the importance of eificiency the latest audit report from the Supreme Audit Agency (BPK) has highlighted inefficiencies in the governments cost-recovery scheme in the upstream oil and gas sector.
In its 2017 first half report based on the audit of 2015 accounts, the BPK reported that there were Rp 27.39 trillion (US$2.03 billion) in potential state losses caused by 9,729 irregularities that comprised mostly Violations of prevailing laws and regulations, in addition to inefficiencies. However, this was down significantly from the 2014 accounts of Rp 44.68 trillion in potential losses.
“There were several issues, including violations of laws and there was also the issue of cost recovery and some corrections to subsidies,” BPK chairman Moermahadi Soerja Dj anegara said after a meeting with President Joko “Jokowi” Widodo at the State Palace on Tuesday.
The latest audit highlighted cost recovery in particular, reporting that the agency had found $ 956.04 million worth of costs expended by oil andgas contractors that should not have been reimbursed by the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas).
Under the cost-recovery scheme, the government is responsible for reimbursing contractors’ exploration and exploitation expenses from the state budget. Moreover, the BPK also found that 17 contractor or working interest holding had not paid some of their taxes since 2015, amounting to $ 209.25 million.
In comparison, the agency recorded potential losses of $ 194.25 million caused by cost recovery in last year`s first-half audit report. Because of these factors, the BPK has 'sent several recommendations to SKK Migas, including that the latter postpone or correct the reimbursement value for cost recovery for 2015.
“[SKK Migas] should also coordinate with the taxation director general to resolve the issues of income tax and branch profit taxes [PBDR], while also implementing fines in line with the taxation terms and conditions,” the report read.
Cost recovery has been a controversial issue for the past couple of years, especially since oil and gas ready-to-sell products, colloquially known as lifting, has been on a downward trend for the past few years. The government has even estimated that the cost-recovery budget is expected to balloon to $ 13.28 billion next year from $10.7 billion this year, as set in the revised state budget.
The realized cost-recovery expense has actually been in a downward trend for the past couple of years. While in 2014, the expenditure reached $16.3 billion, it declined to only $11.6 billion in 2016. Criticism of the cost-recovery scheme eventually led to the Energy and Mineral Resources Ministry’s decision to issue a new production-sharing scheme (PSC), dubbed gross-split.
The government no longer has to reimburse exploration and exploitation activities under the gross-split scheme as the profit splits are decided up front. SKK Migas secretary Arief Setiawan Handoko said the issue had already been discussed with the BPK and was largely resolved.
“All costs that have been approved by SKK Migas for cost recovery are no longer disputed by the BPK. So if [costs] are compatible with the work plan and budget and we know that the expen- diture really occurred then that will be reimbursed through cost recovery
Arief cited an example in the audit report. which alleged that there was an unapproved revision in the Banyu Urip project worth $ 484.11 million. Following the BPK’s findings, the two institutions had visited the site, which resulted in only $ 36 million still being reviewed.
Separately, the Indonesian Petroleum Association (IPA) remained tight-lipped on the BPK’s report as it was the problem of individual contractors.
Jakarta Post, Page-13, Wednesday, October 11, 2017
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