The Indonesian government is working to enhance investment competitiveness in the upstream oil and gas sector by introducing a new Gross Split scheme. This initiative aims to make the Gross Split mechanism more attractive to Contractors of Production Sharing Contracts (KKKS). The Ministry of Energy and Mineral Resources (ESDM) plans to implement the Gross Split component more effectively and revise several policies, including Government Regulations (PP) No. 27/2017 and No. 53/2017 on upstream oil and gas taxation and indirect tax exemptions, including land and building tax for exploitation stages.
Minister of ESDM Arifin Tasrif emphasized that incentives will be provided to make the KKKS’s economics more appealing, including maintaining the Internal Rate of Return (IRR) and product index. The scheme will allow flexibility, letting KKKS switch from Gross Split to Cost Recovery if necessary, addressing issues related to price fluctuations and cost escalation that have previously hampered production. The new Gross Split regulation simplifies the components from 10 to 3 and reduces the progressive components from 3 to 2, offering up to 95% additional split for contractors, including for unconventional oil and gas. The revised policy has been approved by President Joko Widodo and aims to keep Indonesia’s investment climate attractive amid competitive global oil and gas policies, such as those in Guyana, Mozambique, and Mexico, which use simpler tax and royalty schemes.
