JAKARTA (TheInsiderStories) - The Indonesian government considers loosening value added tax (VAT) for crude oil imported by the state owned energy company PT Pertamina, including crude oil to be purchased from international oil companies (IOCs) operating in Indonesia.
Finance Minister Bambang Brodjonegoro told The Insider Stories, the policy is part of the government’s support to help domestic industry.
“It is most likely (to be loosened). The policy could also become an incentive to develop oil refineries going forward,” he stated.
Currently, Pertamina must pay import VAT of 3 percent every time the company buys crude oil from oil traders abroad.
Pertamina is currently in talks with Chevron Pacific Indonesia (CPI) to buy its crude oil produced from its Minas oil field in Riau. Chevron in principle has agreed to sell the Minas (Sumatran Light) crude oil, however, the deal could not go ahead yet due to VAT issue. Both Pertamina and Chevron were reluctant to pay the VAT.
Previously, Chairman of the Special Task Force for Upstream Oil and Gas (SKK Migas) Amin Sunaryadi said, Pertamina had discussed with Chevron Pacific Indonesia and ExxonMobil Indonesia to supply oil to the company’s refineries.
The problem is that Chevron and ExxonMobil that are operating in Indonesia are crude producers, not crude oil traders. The two companies must sell the crude oil through their trading arms in Singapore and Pertamina must pay import VAT of 3 percent for the imported crude oil.
Given this condition, the SKK Migas Chairman is planning to request an exception to the Finance Ministry (in this case Director General for Taxation) so that the purchase of crude oil from the two oil companies by Pertamina will not be imposed with imported VAT.
“They (Exxon and CPI) are happy to sell their crude to Pertamina in accordance with the prevailing market price. Pertamina is also happy if it can buy (crude oil produced domestically) from Chevron or Exxon at market price,” Amin said.
Last year, Indonesia only produced 792,000 barrels of oil per day (bpd), which was below the set target of 825,000 (bpd) due to the delay peak production of Banyuurip Field in Cepu Block. Some of its production facilities, including Central Processing Facility (CPF) was not completed in due time.
Director General of Oil and Gas of the Ministry of Energy and Mineral Resources (ESDM) I.G.N. Wiratmaja Puja stated that in 2016 the government has set a production target of 830,000 bpd. He was optimistic that the target would be achieved as the Cepu Block would reach peak production in the first half of this year.