Cost Recovery

Cost Recovery is still necessary to be included in State’s Budget of Revenues and Expenditures (APBN) so that the government can estimate the amount of State’s revenues and variable costs as the component of deduction of the revenues.

This opinion was expressed by Maryati Abdullah, the coordinator of PWYP. Her opinion was based on a consideration that State’s Budget of Revenues and Expenditures (APBN) is one of the country’s financial policies which covers the aspects of revenues and expenditures, all of which become a public domain.

"Even the lifting of crude oil becomes one of macroeconomic indicators as the basic assumptions of APBN, so that it is logic if the cost recovery is also included in the APBN, and otherwise the public will think that the State’s revenue is equivalent to the amount of crude oil lifting. In reality it needs to be firstly reduced by the element of deduction such as cost recovery and then the production is split and shared between the contractor and the government. This shared split is the basis of State’s revenue from the oil and gas sector," added Maryati, who also is a representative of non-governmental organization in the Multi- team of EITI (Extractive Industries Transparency Initiative) chaired by the Coordinating Minister of Economy.

However, the public including members of parliaments need to understand that the cost recovery is not directly proportional to State’s revenue because oil and gas blocks which are in new or difficult frontiers would require high cost, advanced technology, and more time and resources. It is not that simple to go through phases from exploration to exploitation (production).
It will depend on the performance of the production, the price of crude oil in the market during the production phase, and other aspects that directly or indirectly affect the performance of State’s revenues. Including in the aspects are monitoring and control by the government, and also the social and environmental aspects which can affect the performance of mining operations.

On the anxieties of the private sector which is still facing criminalization risks if cost recovery is included in APBN, Maryati said such anticipation will not happen. In the planning and implementation of the mechanisms there is a role of government as represented by Special Work Unit on Oil and Gas (SKK Migas) in charge of the planning, control and supervision of the cost recovery. In other words, the SKK Migas will perform its function of pre- audit and post-audit.

If there is a fraud or a criminal act, the Government (SKK Migas) and other authorities shall also be responsible for such a case.

In addition to the inclusion in APBN, Maryati suggested that the information and data of cost recovery be revealed in EITI, which was set up by the Government under Presidential Regulation (Decree) No. 26 of 2010. It is important to do in order that the public receive adequate information regarding the cost recovery and it will not cause any misunderstanding among the public and the members of the House of Representatives (DPR) in Senayan, who will discuss about APBN.

"So, if the mechanism is clear and as long as there are no leaks of fund and any fraud or possible corruption, I think we have nothing to worry about. Disclosing such information and data will be part of the spirit of transparency," she said.

Moreover, Maryati added, the law enforcement of this country in the current era of openness or transparency it is better to improve the system.

As long as there is honesty it is unnecessary to worry. "Moreover, efforts for public transparency in the extractive sector is in line with Indonesia’s leadership in the global initiative called the Open Government Partnership (OGP)," Maryati said.

This article was featured in PETROMINER Magazine, 04/April 15, 2014 Edition.