No more taxes on exploration equipment

Ika Krismantari, The Jakarta Post, Jakarta

A regulation exempting oil and gas operators from paying import duties and other taxes on drilling equipment will issue in January, Finance Minister Sri Mulyani Indrawati said here Friday.

Speaking at the year-end meeting of the Ministry of Energy and Mineral Resources, the finance minister said the regulation would be effective immediately upon issuance and would free oil and gas operators from paying any tax when importing drilling rigs and similar equipment.

At present, oil and gas companies pay a 27.5 percent tax -- 15 percent import duty, 10 percent value added tax and 2.5 percent sales tax -- to import equipment.

"We hope that with this incentive exploration activities will escalate and oil production will increase," she told executives of major mineral companies during the meeting.

The government's promise to provide tax incentives came amid growing complaints from oil and gas operators about high additional costs paid to bring equipment into the country.

Upstream oil and gas regulator BPMIGAS reported recently that combined shipment and tax expenses could cost mineral companies up to half of the value of equipment imported. As a result, some operators were considering delaying exploration activities.

There has been a downward trend in Indonesia's oil production over the last six years due to maturing fields and a lack of new exploration.

This year, the government failed to meet its oil production target of 950,000 by about 40,000 barrels per day.

R. Priyono, the energy ministry's director for upstream oil and gas, said he expected the incentives to facilitate oil and exploration and allow the government to hit its target of 1.034 million barrels in coming years.

Priyono said the government is considering special treatment of investors interested in oil and gas blocks in eastern Indonesia.

"They will be free from the obligation to drill within three years of the issuance of exploration rights," he said.

"So, they will have much more time to carry out seismic surveys and to gather other data before conducting (actual) exploration."

He said he hoped this policy would make the oil and gas blocks in remote eastern areas of the country more attractive to investors.