Economists Explain How the 10% Oil and Gas PI Works

The concept of a 10% participating interest (PI) in Indonesia's upstream oil and gas sector is frequently misinterpreted as direct funding for regional governments, but economists are working to clarify its true nature. PI 10% represents a business ownership right intended to harmonize the interests of oil and gas contractors (KKKS) with those of local governments in producing areas.

Senior economist Dahlan Tampubolon from Riau University explained that the PI 10% scheme is not a grant or a revenue-sharing fund that directly enters regional budgets. Instead, it is a right to participate in upstream oil and gas contracts, with a maximum of 10% ownership, as stipulated in ministerial regulations.

“

PI is a right to participate in business, a maximum of 10% in upstream oil and gas cooperation contracts.

Tampubolon cited the example of Riau, where the perceived value of PI has led to misunderstandings. He clarified that figures like Rp3.5 trillion, often cited, represent gross production rights, not net profits ready for distribution. Equating these figures directly leads to unrealistic public expectations.

“

So if someone says Rp3.5 Trillion is money for Riau, that's fundamentally wrong. That figure represents gross production rights, not net profit ready for distribution. If you equate it directly, public expectations will be mistaken.

The PI 10% scheme also promotes economic involvement through equity stakes held by regional-owned enterprises (BUMD). This allows regions to act as business players in the upstream sector, not just recipients of fiscal transfers. This involvement is expected to help BUMDs build capacity and experience in the oil and gas industry, creating productive assets that can generate dividends for the region.

"Don't just spend it all at once on short-term consumption. PI 10% is a strategic investment instrument for sustainable fiscal independence. It's not 'surprise money' that's gone after one use," Tampubolon urged. He stressed that funds received by BUMDs from PI 10% are company revenues that must first cover operational costs, financing obligations, taxes, and company reserves. Only after becoming net profit can these funds be distributed to local governments as dividends, following shareholder decisions, before entering the regional budget.

“

Don't just spend it all at once on short-term consumption. PI 10% is a strategic investment instrument for sustainable fiscal independence. It's not 'surprise money' that's gone after one use.