Comparative Study of Indonesian PSC and Malaysian PSC: Challenges and Solution

Abstract

Malaysia is one of the many countries that adopted Indonesian’s Product Sharing Contract (PSC) since its second formulation. However, both countries had developed their own version of PSCs according to each State’s interest within the last thirty decades. These recent years, Indonesian fiscal regime tends to be less investor-friendly than Malaysia. As a result, Malaysia leads in front Indonesia on attracting foreign investment flooding into its oil and gas sector in the last few decades. The most recent case was happened when only five blocks taken by investors from sixteen blocks that were being auctioned by Indonesian government in 2009. Indonesian government took this issue to restructure the Cost Recovery Regulation on Oil and Gas sector. The new regulation meant to attract foreign investment and recover Indonesia position against the neighboring rival country. This leads to the following questions: (i) why Malaysian PSC could be more investor-friendly than Indonesian PSC; and (ii) how the new regulation on Cost Recovery make Indonesian PSC more competitive against Malaysia PSC? The research will employs comparative legal study in Indonesian and Malaysian legislatives with emphasize on Indonesian new Cost Recovery regulation draft. The ruling is supposedly to be enacted in the end of June 2010. Literature review will strongly support the research as secondary sources along with other relevant sources.

Keywords: Production-Sharing Contract, Malaysia, Indonesia, Cost Recovery

JEL Classification: E62, E63, N55, O13