Indonesia Delays Bidding on Oil & Gas Blocks Over Tax Issue

Indonesia's Mines and Energy Ministry has delayed the bidding process for 10 new oil and gas blocks from June to September due to an unresolved tax matter, a government official said Monday.

The Finance Ministry is trying to collect a 10% value added tax on equipment used by oil and gas companies for exploration. But the companies argue that such a policy will boost exploration costs, while there is no guarantee they will make any discoveries.

Currently, they pay the tax only after commercial production.

Iin Arifin Takhyan, director general of oil and gas at the Mines and Energy Ministry, said he hoped the two ministries can resolve the matter soon and expects the government to award the 10 blocks in October.

"The finance minister and mines and energy minister will meet soon to discuss the issue," he added.

The 10 blocks include the offshore Madura I,II and III blocks. International companies such as Exxon Mobil Corp. (XOM), ChevronTexaco Corp. (CVX) Total S.A. (TOT) and CNOOC Ltd. (0883.HK) have expressed interest in the blocks, Iin said.

The government is willing to give between a 20%-35% split of oil revenues to companies which will operate the blocks under production sharing contracts, up from 15%, to attract new investment in the country's upstream oil and gas industry.