It must not do that. The rule has been made and so it must be enforced."
Jakarta (ANTARA News) - Energy observer Pri Agung Rahmanto said the government will break the law if it extends concession of Inpex Masela Ltd. on Masela Block ahead of schedule.

"The government must be consistent and must not break the law that it makes itself," he said here on Sunday.

The executive director of ReforMiner Institute also said that it is inappropriate for the government to seek loopholes in the law to make it able to extend the Japanese company`s contract.

"It must not do that. The rule has been made and so it must be enforced. If it seeks loopholes it would only create suspicion," he said.

Reason that the period is too short for recovering investment may not be used as an excuse to extend the contract, he said.

Pri said the problem of investment recovery is Inpex`s own mistake.

"The government must not take responsibility over a contractor`s mistake. It will become a bad precedent for others to follow if the government does that and it will cause a loss to the state," he said.

He said application for the extension of Masela`s contract must be done in line with the law namely minimally 10 years before the end of the contract or in 2018.

"The next government will certainly consider it. So, it must not be forced to be done now by violating the law," he said.

In view of that, he said the government must reject the request of Inpex.

"If the government decides to extend it then we may have nothing to expect from it. Even it breaks its own rule. So, what is the need of talking about self-reliance, energy resilience and empowerment of state-owned companies," he said.

The commercial deputy of SKK Migas, the upstream oil and gas regulator, Widhyawan Prarwiraatmadja, said he is right now still waiting for the calculation over investment cost return from Inpex.

"We will see its economics. How many years it will take to return its investment," he said.

He said extension of contract must not always be 20 years, depending on the results of economic calculations.

He said there has actually been a precedent namely in the Tangguh project whose contract was extended before 10 years of its expiration.

But at the time Tangguh had a gas sales agreement with a buyer, while Inpex has not, he said.

Widhyawan said he expects the problem would be solved before the end of this year.

On Wednesday (18/9) President Susilo Bambang Yudhoyono received Inpex Corporation President and Chief Executive Officer Toshiaki Kitamura.

In the meeting Inpex raised its request for extension of its concession on Masela Block until 2048.

Based on Article 28 Paragraph 5 of Government Regulation Number 35 of 2004 on upstream oil and gas activities extension of contract may only be extended in 10 years at the earliest time.

The contract for Masela Block between the government and Inpex meanwhile was signed in 1998 and will only expire in 2028 or 15 years later.

The director general of oil and gas of the ministry of energy, Edy Hermanto, meanwhile said that the government would seek loopholes so that it could extend Inpex`s contract without having to change the government regulation.

The reason is because Masela`s production is expected to begin in 2018 or 10 years before the expiration of the contract and so is considered not insufficient for returning the investment that reached US$14 billion.

The Masela Block is located offshore of Arafura waters around 155 kilometers southwest of Saumlaki directly bordering Australia and Timor Leste.

Based on development plans approved in December 2010, the project will produce 355 MMSCFD gas and 8,400 barrels of condensate a day.

Inpex meanwhile plans to build a floating liquefied natural gas refinery with a capacity of 2.5 million tons a year.

Right now, Masela`s participation right is held by Inpex Masela Ltd. that also acts as the operator holding 65 percent shares wh35 percent.

(Reporting by Kelik Dewanto/Uu.H-YH/S012)

Editor: Priyambodo RH
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