Policy Shifting Towards New Regime of Production Sharing Contract

In 1960’s, Indonesia was starting to use Production Sharing Contract (“PSC”). Being the first country to enter to this model, the Government of Indonesia maintains the sovereignty of their petroleum resources. Cost of exploration and development will be recovered from production share if contractors manage to make a commercial discovery and commence production (“Cost Recovery”). After more than five decades using the PSC fiscal regime, in early 2017 Indonesia’s Ministry of Energy and Mineral Resources issued Regulation No. 8 of 2017 whereas new PSC contract must comply with new model PSC called Gross Split PSC (“Gross Split”). The new fiscal regime removes Cost Recovery from the system which has been the major feature of all PSC in Indonesia. Changing from production sharing base to revenue sharing base might change the whole game in upstream industries in Indonesia.

The paper is organized as follows: introduction, overview about PSC history and model in Indonesia. explaination the new fiscal regime called Gross Split, how the new fiscal regime (Gross Split) deal with problems in the industry.