Revised Oil and Gas Law Slated for 2013

Retno Ayuningtyas & Pamuji Slamet

The revision of Indonesia’s 2001 Oil and Gas Law is expected to be completed in mid-2013, with government and lawmakers pledging will work fast to minimize uncertainties in oil and gas investment in the country.

Rudi Rubiandini, the deputy energy and mineral resources minister, told reporters last week that revising the Oil and Gas Law was necessary following the Constitutional Court ruling on Nov. 13 that dismantled the legal basis for upstream oil and gas regulatory agency BPMigas.

He noted that the government had been drafting the revision for the law since last year, but it did not mention the disbandment of BPMigas.

However, the Constitutional Court moved faster, ruling on the case brought by prominent organizations, including Muhammadiyah, Indonesia’s second largest Muslim association, and several academics.

It found that BPMigas’s presence, as mandated by the 2001 law, did not adequately manage the nation’s natural resources for the benefit of the people.

Rudi said the draft revision will call for the establishment of a “petroleum fund,” a pool of capital siphoned from the revenue of the oil and gas sector that will be used for research and development purposes.

He added that this system will help oil and gas contractors to find potential reserves more effectively.

It remains unclear, though, whether the role of BPMigas will be assumed by a state-owned enterprise or a state-owned legal entity. BPMigas’s previous status was that of a state-owned legal entity.

Rather than debating the legal status of the new regulator, Rudi said, the government and lawmakers should study how state revenue is managed.

He said that under BPMigas, all state revenue went directly to state coffers, while the agency took 1 percent in management costs.

Rudi, who served as the deputy of operation controls at BPMigas before he was appointed to his current post in June, said BPMigas only used about 60 percent of the fee it was entitled to.

He claimed in early June, when he was still with BPMigas, that state revenue from the oil and gas sector would reach between $31.8 billion and $33.1 billion in 2013, slightly below this year’s estimate of $33.5 billion.

Prior to the establishment of BPMigas in 2002, regulation of the oil and gas sector was performed by state energy company Pertamina. During this era, Pertamina took a fee of 3 percent of the revenue for managing the oil and gas sector.

Last Wednesday, two cabinet ministers — Energy and Mineral Resources Minister Jero Wacik and State Enterprises Minister Dahlan Iskan — dismissed the possibility that Pertamina would assume the role of the defunct BPMigas, instructing the company to focus on improving itself.

Pertamina president director Karen Agustiawan agreed with the ministers, sating that the firm “will not once again be a regulator” and instructing company staff to stop making public statements about BPMigas.

Moody’s Investors Service said last week the disbandment of BPMigas was “credit negative” for Indonesia, citing concerns that it might hamper investment at a time when crude oil production was declining.

Golkar Party lawmaker Satya W. Yudha, a member of House of Representatives Commission VII, which oversees the energy sector, said he expected the draft revision of the law to be on the agenda for a plenary meeting of the House in January.

“If all goes smoothly, the revision should [be] approved by mid-year, or around July of August 2013,” he said.

He also agreed that Pertamina should not assume BPMigas’s role. Satya said that if power is given back to Pertamina, a state enterprise, it will be vulnerable to a conflict of interest, as an operator cannot also be a regulator.

Downstream regulator BPH Migas appears unaffected by the court decision.

Investor Daily