Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation THE NEW SCHEME OF INDONESIAN LNG SALES OPERATION

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation The Purpose  To discuss the new regulation related to LNG sales contract in related with cost of sales and cost recovery.  To discuss the Roles of Joint Management Group (JMG) and Joint Transportation Group.  To gather data from PSC’s  To prepare new work flow for budget approval of existing LNG sales contract.  To prepare Work Plan & Budget for LNG sales operation.

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation Oil and Gas Industry Changes and Challenges THE CHANGES Political reforms & economic recovery initiatives have resulted in the new paradigm : ~ More open and transparent in oil and gas business ~ Competitive environment Law of Oil & Gas No. 22/2001, 23 November 2001 has replaced Laws No. 44/1960 & 8/1971 : ~ Reform the legal and institutional frameworks ~ Establishment of Executive Agency for Upstream Oil & Gas Business Activity (BPMIGAS) and Downstream Regulating Board (Badan Pengatur) THE CHALLENGES Declining oil production Domestic gas demand growth LNG/LPG market shifted from seller’s market to buyer’s market Optimum allocation of gas utilization for domestic and export

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation Legal Marketing Framework  Oil and Gas Business Activities are divided into Upstream Business Activities and Downstream Business Activities  Government Regulation No. 42/2002 article 11 point g; BPMIGAS appoints seller for state share of crude oil and/or natural gas who can provide the greatest possible benefit/profit to state.  Upstream Business Activities comprise of Exploration, Exploitation and other activities (processing, transportation, storage and marketing) before point of sales.  Upstream Business Activities shall be conducted under Co-operation Contract : PSC or other form of contracts.  Management and control of Upstream Business Activities are performed by Executive Agency for Upstream Oil & Gas Business Activities (BPMIGAS), which is a State-owned Legal Entity.

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation Law No. 22/2001 -Art. 6.2.b : Management operational control shall be with the Implementing Body -Art e :Approve work programs and budget -Art. 63.a : Upon the establishment of the implementing Body, all rights, obligations, and consequences arising from a Production Sharing Contract between Pertamina and other parties shall revert to the implementing body. GR.No. 42/2002 -Art.10 : The implementing body has the function of conducting supervision of upstream business activity -Art.11 g : Appointing sellers of the state’s share of crude oil and/or natural gas -Art.12 a: supervise and guide cooperation in order to bring about integration and synchronization of the operational activities of Cooperation Contract contractors; b. formulate policy on Cooperation Contract contractors’ work plans and budgets; c. supervise the primary operational activities of Cooperation Contract contractors; d. supervise and guide all the assets of Cooperation Contract contractors that are the property of the state; e. conduct coordination with parties and/or agencies concerned as necessary in the execution of Upstream Business Activities. The External Background of LNG Operation Budget Approval by BPMIGAS

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation CONFIDENTIAL LNG Cash Flow UU No. 8/1971 LNG Revenue Net Back Equity to be Split PSC Portion Indonesian Portion Pertamina Government Cost Recovery Cost of Sales After Tax 35 % 65 % -Biaya produksi gas oleh - Processing Cost (PT. ARUN & PT.BADAK) - Transportation Cost (Vessel, crew, drydock maintenance). - Admin & mgt Cost (JMG, JTG, NGS dll ) - Services (CTS, Surveyor, Insurance, tongkang/agent) - Bank Fee, Trustee Fee Net Back Cost of sales Cost Recovery -Debt Service for train development -PSC Gas production cost

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation LNG- Joint Management Group (JMG) By Law No 22/2001 Managed by BPMIGAS

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation CONFIDENTIAL LNG Business Cash Flow by Law 22/ PSC Gas production cost LNG Revenue US $ ? Net Back Equity to be Split PSC Portion US $ ? Indonesian Portion = 100 % Govt. Revenue Cost Recovery Cost of Sales After Tax 35 % 65 % Net Back US $ ? Cost of sales US $ ? Cost Recovery - Processing Cost (PT. ARUN & PT.BADAK) - Transportation Cost (Vessel, crew, drydock maintenance). - Admin & mgt Cost (JMG, JTG, NGS dll ) - Services (CTS, Surveyor, Insurance, tongkang/agent) - Bank Fee, Trustee Fee - Pertamina Fee -Debt Service for train development

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation No.ActivityExisting Supervisory/ActivityRequired 1. LNG revenue distributionTrustee Paying Agent (BOA) 2.Government portion for Administration and LNG Sales Revenue ( inc. Pertamina fee) Directorate Finance - Pertamina Bidang FE & P BPMIGAS 3.LNG Plant SupervisoryBidang Pengolahan PertaminaBidang Operasi BPMIGAS 4.Transportation ( Vessel, Crew, Maintenance) supervisory Bidang Pms & Niaga PertaminaBidang Operasi BPMIGAS 5. LNG Marketing SupervisoryBidang Pms & Niaga Pertamina Bidang FE & P BPMIGAS 6.Commercial, Administration & Service etc. Bidang Pms & Niaga PertaminaBidang FE & P BPMIGAS 7.Work Program & BudgetBid. Perencanaan BPMIGAS hanya pembahasan Cost Recovery Bid. Perencanaan BPMIGAS 8.Office & Operational administration ( JMG, JTG, NGS Osaka, NGS Hkg) etc. Bidang Pms & Niaga PertaminaBidang FE & P BPMIGAS LNG Sales Operation Activity-Supervisory and Responsibility by Law No. 22/2001

Jakarta, July Marketing Division – The New Scheme of LNG Sales Operation Conclusion : 1.In line to new Oil and Gas law BPMIGAS should control and manage all the operation cost of LNG before Netback and cost recovery to optimize government revenue. 2. BPMIGAS will simplify the organization of LNG Operation to reduce cost. Recommendation : 1.Establish the new system and mechanism for controlling and managing Indonesian LNG business from feed gas, LNG plant, transportation, sales operation and marketing (non profit company) under control BPMIGAS 2.Execute Work Plan & Budget for all Indonesian LNG activities to control and approve all LNG cost which use cost of sales before netback Conclusion and Recommendation