Indonesia's New Petroleum Fiscal Regime: Fiscal Changes, Impacts and Future Trends

Abstract

Indonesia has its special influence on the world petroleum industry not only due to its relatively abundant resources but also to its historical influence on world petroleum fiscal regimes. The newly enacted EMER regulation on Gross Split PSC in 2017 was the biggest structural change of Indonesia's petroleum fiscal regime in a decade and will have profound influence on Indonesia's Petroleum Industry. This research compares the detailed fiscal terms between Indonesia's standard PSC and Gross Split PSC and further analyse the possible negative impacts based on model economic evaluation analysis as well as qualitative analysis. In conclusion, the Gross split PSC has negative impacts on contractor economics and may deter new investments in oil and gas exploration and development. Although the gross split PSC brings the simpler administration and better structure of fiscal progressivity. The change to Gross Split PSC reflects Indonesia's long fiscal policy trend of increasing government take and strengthening government control. However, Indonesia's government will also bring more incentives to offset the negative impacts of fiscal regime change and thrive to balance between improving government benefits and attracting foreign investments to revitalize oil and gas exploration and development.