BPK to expand probe on oil and gas contracts

The Jakarta Post - The Supreme Audit Agency (BPK) will extend its investigation intoall oil and gas contracts, particularly the 54 contracts likelyto cause losses to the state.

"About the 54 contracts, we will audit every one of them. Sofar, we have audited 70 percent of all oil production contracts,"BPK chief Anwar Nasution said Wednesday during a hearing withlawmakers at the House Commission VII overseeing energy affairs.

Earlier, the commission informed the agency about the 54 oiland gas contracts, which use a pricing mechanism similar to theone used by the contract for liquefied natural gas (LNG) from theTangguh plant in Papua with the Chinese government.

Vice President Jusuf Kalla said the Tangguh contract was themost devastating contract ever made, as the selling price was nottied to the movement of oil prices, a method commonly used in gasdeals.

Under the contract, the price of LNG was pegged at US$2.40 permillion British thermal units (mmbtu) regardless of any increasein crude oil prices, which have brought the price currently toabout $20 per mmbtu.

The government is now seeking to renegotiate the contract.

Anwar said the audit into the oil and gas sector had beencarried out since 2005, something never completed by the agencybefore. Within the period, Anwar said the agency conducted theaudit relying on very limited human resources.

Even so, he said, the agency would intensify its investigationto protect state interests and would soon expand its probe intothe oil shipping and pipeline distribution system.

A BPK audit of government income statements from 2005 to 2007revealed that Rp 120 trillion (US$13.2 billion) in oil revenuewent unreported and was spent outside the state budget mechanism.

The BPK also found in its audit for 2006-2007 that BPMigasoverpaid Rp 40 trillion in recovery costs to contractedcompanies.

They also calculated that misappropriations of oil imports andoverpaid recovery costs had cost the state at least $2.1 billionand $2 billion in 2006 and 2007, respectively.