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Tuesday, June 20, 2017

Oil, gaslaw revision raises questions about role of regulators



The status quo of two regulatory agencies in charge of the upstream and downstream oil and gas industry has come  into question as the final draft of the oil and gas law revision is being discussed at the House of Representatives’ Legislative Body (Baleg).

The draft foresees the establishment of a new special enterprise (BUK) that will be in charge of making deals with private investors and conducting exploration and exploitation activities. The BUK will also be in charge of managing the downstream sector, which includes the distribution of oil and gas.

The enterprise will essentially take over responsibilities from Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) and the Downstream Oil and Gas Regulatory Agency (BPH Migas).

SKK Migas currently overseas oil and gas contractors’ work plans and budgets, which encompasses exploration and exploitation activities. It was established in 2012 after the Constitutional Court dissolved the Upstream Oil and Gas Executive Agency (BP Migas).

During a meeting with Baleg on Thursday, SKK Migas chairman Amien Sunaryadi said the regulatory body would willingly accept any role given to it under the new law and was hopeful that the new law would help boost investment into the country.

However, he wanted more clarity on the new enterprises role and how it would manage the upstream oil and gas sector. “There needs to be more clarity about the oil and gas BUK. Will it be a corporation that manages its own profits and only pays out dividends to the government. or will it be a government institution that submits all its profits to the government,” he asked, adding that there was also the question of how the new enterprise would generate its revenue.

Unlike SKK Migas, the oil and gas BUK would be able to conduct its own exploration and exploitation activities, currently only done by state-owned and private oil and gas companies.

The draft does not specify which state-owned firm will he merged with SKK Migas and BPH Migas to create the new firm, but oil an gas firm Pertamina is currently the only state company operating in the upstream sector. Oil and gas business players have been waiting almost a decade for legal revisions, with many complaining that existing regulations make upstream investment unappealing.
Convincing oil and gas business players to invest more in the country is essential if the government hopes to meet domestic demand and minimize imports in the future.

Upstream oil and gas investment has continued to decrease. dropping by 24.5 percent to US$12.01 billion in 2016 from $15.9 billion in 2015. The number of oil and gas fields being operated has continued to decline as well, falling to merely 288 fields in 2016 from 321 in 2013.

While the upstream segment clearly remains the focus of the industry, Amien questioned whether the new law would also regulate the midstream segment, which has contributed to high gas prices at the consumer level.

Meanwhile, newly-appoint cd BPH Migas head Fanshurullah Asa, who previously served as the agency’s committee member, said that instead of merging BPH Migas into a new entity, the state should strengthen it, as the country would soon have to start focusing more on the downstream sector, since it’s oil and gas reserves were depleting.

“According to the data we have, oil reserves will be gone in nine years and gas in 15 to 20 years, so sooner or later' our refined fuel reserves will run out. Once that happens, the upstream segment will no longer be the main focus, but the downstream segment will. We will need to manage liquefied natural gas and compressed natural gas imports. So we feel that BPH Migas will still be relevant,” he said. 

The government has predicted that the country will need to start importing gas in 2019 with around 1,672 million metric standard cubic feet per day (mmscfd), and almost twice that amount by 2035.

Jakarta Post, Page-13, Friday, June 16, 2017

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