Opinion
PSC Standard has the Most ‘Win-
Standard Win’ Solution
‘Win-Win’
D
Discussions on oil and gas con-
tracts in the mailing list remain
up to date. Friends’ efforts to look
for a good model deserve appreciation.
But after some alternatives are put for-
ward, and then tested, it seems that the
model that is meant to be simple (in my
opinion) is still not better than the PSC
we are using. A colleague asks, is there
something wrong with our current PSC
model? Or there is nothing wrong, but
only us who have the perception that
there is something wrong.
Cost recovery
Undoubted, the trigger of the wish
to soon get a new model is the disap-
pointment toward what is called cost
recovery. From the first time I wrote in
the blog about cost recovery, I said this
terminology often trigger laities to be
mistaken in its use. So don’t be surprised
when people rush in search of a system
that has no cost recovery.
In one of his writings, Prof.
Wdjajono Partowidagdo, wrote:
…An opinion that says that a Con-
ROR (%)
cession or Contract of Work is non-Cost
Recovery is wrong. As long as there is
tax, there is cost recovery, because tax
is calculated from revenue minus recov-
erable cost….
I think in this context Wid wished
to say that all contracts have their cost
recovery. Whatever model to apply (as
long as there is tax), there is always cost
recovery. Of course the term is not spe-
cifically cost recovery.
By: Benny Lubiantara
Alternative method
Several alternatives have been put
forward by my friends in their effort to
‘eliminate’ cost recovery with various
terms and names. So far the proposals
have not been satisfactory because they
were unable to prove that the proposed
mode is better than our PSC standard,
unless with a promise that the model is
far more simple and far from slander.
I will follow the internationally
valid rule, the good and the bad of a
model, the gauge is: Government Take
(GT) and other economic parameters. I
also don’t see the connection that a
simple model guarantees no slander. If
currently the source of the commotion
is cost recovery, probably with the
simple model the source of the commo-
tion is the sharing split. Who knows?
From the outcome of simulation by
a mailing list friend proves that the ‘non
recovery’ model they proposed is only
good at the time when the price of oil is
low and will be worse than the PSC stan-
dard model at the time the price of oil is
high,. (See illustration)
MARR
Price
The logic is this: Non cost recovery
model that takes the share direct from
gross revenue and another alternative
model that has a similarity. During a con-
dition when the price of oil is not too
67
good, it would be good for the RI govern-
ment but bad for the contractor. Why?
Because the gross revenue is small, the
share obtained by the IOC ‘doesn’t kick’
to recover cost, because said alternative
model indirectly has a very big ‘cost re-
covery limit’ for the contractor (IOC).
The consequences: IOC should be
patient in carrying over their cost into
the years that follow, further implica-
tion clearly it has to do with ‘time value
of money’ reflected by the low eco-
nomic parameter such as ROR and its
companions. If ROR is below MARR,
only two choices is left: cancelled or
renegotiation.
Conversely, if the price of oil is
good (or very good), gross revenue is
high, contractor’s share is also high, cost
spent by the contractor becomes insig-
nificant compared to their revenue share,
as a consequence: ‘excessive profit’ for
the contractor, therefore the simulation
shows that government take will be bad
(compared with PSC standard) at the
time when the price of oil is good.
I once said that in fact the current
PSC has a ‘win-win’ solution, it means
that at the time when the condition of
oil price is not so good, the contractor
could still carry on for the project is still
economic (ROR>=MARR). This is be-
cause their cost recovery limit is only
limited by FTP, while at the time when
the price of oil is high the GT will be
better compared with the alternative
models. Of course the contractor’s ROR
also rises, but not excessively as the al-
ternative model mentioned above.
Fiscal Policy Analyst of OPEC,
Doctoral Candidate,
International University (IU), Vienna.
PETROMINER No. 10/October 20, 2009