The World Owes Indonesia (Part III)

The World Owes Indonesia (Part III)
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I was having my class, listening to my lecturer on the application of hukum adat (adat/traditional law) in this globalized world when she then explained something that surprises me a lot. She told the class that Production Sharing Contract (PSC) was initially based on an Indonesian Tradition. That form of contract is now adopted by many countries. By the way, what is PSC? Production Sharing Contract (or Production Sharing Agreement) are a common type of contract signed between a government and a resource extraction company (or group of companies) concerning how much of the resource (usually oil) extracted from the country each will receive.PSAs were first used in Bolivia in the early 1950s, although their first implementation similar to today's was in Indonesia in the 1960s. Today they are often used in the Middle East and Central Asia. In PSAs the country's government awards the execution of exploration and production activities to an oil company. The oil company bears the mineral and financial risk of the initiative and explores, develops and ultimately produces the field as required. When successful, the company is permitted to use the money from produced oil to recover capital and operational expenditures, known as "cost oil". The remaining money is known as "profit oil", and is split between the government and the company, typically at a rate of about 80% for the government, 20% for the company. In some PSAs, changes in international oil prices or production rate can affect the company's share of production.PSAs can be beneficial to governments of countries that lack the expertise and/or capital to develop their resources and wish to attract foreign companies to do so. They can be very profitable agreements for the oil companies involved, but often involve considerable risk. My other lecturer said that PSC was originally based on a sundanese tradition called 'Maro', which means "halving" into two pieces.It is a tradition to halve the profit based on each side's contribution.

This system was first applied by Pertamina in its contracts with some foreign investors (Shell and Caltex), in the middle 60s. The attracted other country to adopt the same arrangement with foreign investors. News Source : Indonesian PSC , wikipedia Image Source : wawanhr

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