The government is planning to introduce a more flexible revenue-splitting mechanism to attract more investment in coal bed methane development. It is proposing to split gross revenue, rather than net income, with investors, and give investors a larger share of that gross revenue in exchange for not allowing them to recover costs incurred during development and operation, which they are currently allowed to do.
A leading player in the coal-bed methane energy sector said that investors should receive at least 82% of the gross revenue from such projects to increase investment in the sector. Currently, investors in such projects receive 45%-49% of the net income, with the government getting the rest.
The proposed scheme had yet to be finalized and no numbers had been agreed on. The coal-bed methane investors would be able to choose between the new system and the old system.
The coal-bed methane projects required greater incentives for investors because it was a relatively new sector in Indonesia. Ephindo is currently working on three domestic coal-bed methane projects. Methane exists naturally in coal deposits.
Indonesia has estimated reserves of 453 trillion cubic feet, the second-largest in the world after China. Since 2008, the government has signed 20 coal-bed methane production-sharing contracts with investors.
Energy Minister Darwin Zahedy Saleh said he expected five such projects, producing a combined 4.2mmscfd of gas a day, to come on stream next year. Coal bed methane can be the new source of supply for PGAS . Reiterate buy on PGas as it remains a structural story of Indonesia’s shift to gas.
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