Major changes are on the horizon for those Working in Indonesia’s oil and gas industry as the final draft of the Oil and Gas Law revision was recently submitted to the House of Representatives’ Legislation Body (Baleg). Oil and gas players have been waiting for a revision of the 2001 law for almost a decade as many lament that existing regulations have made investment in the upstream oil and gas sector unappealing.
While the iinal revision will still take a While, the draft submission brings the process one step closer to changes in the oil and gas sector.
The status quo of several government and state-owned institutions Will change, according to a copy of the draft obtained by The Jakarta Post, as the House Commission VII overseeing energf seeks to establish a special enterprise (BUK) responsible for making deals With private investors and conducting exploration and exploitation activities.
The enterprise will take over the roles of the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) and the Down-stream Oil and Gas Regulatory Agency (BPH Migas).
SKK Migas currently oversees oil and gas contractors’ work plans and budget, which consists of exploitation and exploration activities. It was established in 2012 after the Constitutional Court dissolved the Upstream Oil and Gas Executive Agency (BP-Migas), which basically held the same role as SKKMigas.
The draft does not specify which state-owned firm will be merged with SKKMigas and BPH Migas to make the new firm, but oil and gas firm Pertamina is currently the only state company operating in the upstream sector. Commission VII legislators argue that the BUK is needed to boost efficiency and will not operate under the State-Owned Enterprises (SOE) Law, which underlines a need for profit.
Satya Wira Yudha said it would be impossible for the new firm to operate under the SOE Law as it would focus on conducting expensive and high-risk exploration activities.
“The SOE Law stipulates that state-owned companies must make a profit. The potential for losses is great in the oil and gas industry,” he said on Tuesday.
The government may also be in for a rude awakening in relation to its efforts to implement a new gross-split scheme it recently introduced through a ministerial decree. VVhile the draft allows for “other types of contracts,” only the cost recovery scheme is mentioned in writing.
The cost recovery scheme is a type of production sharing contract (PSC) that holds the government responsible for reimbursing contractors’ exploration and exploitation activities.
Despite its burden to the state budget, some lawmakers at the House hope to nix the gross split scheme altogether as they claim that many investors have found it economically unfeasible for the current investment climate.
Harry Poernomo, said no merge would occur between Pertamina, SKKMigas and BPH Migas, but the new entity would be the parent organization for them.
Deputy Energy and Mineral Resources Minister Arcandra Tahar said the government was confident that the gross split scheme would still continue to be used so long as the new law does not prohibit other contract schemes.
The Energy and Mineral Resources Ministry is preparing its “counter proposal” to the revision and will present it once the government and lawmakers begin the discussion phase. The Indonesian Petroleum Association (IPA) has yet to issue its opinion on the draft as it is still reviewing it.
Convincing oil and gas business players to invest more in the country is essential ifithe government hopes to fulfill 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 to merely 288 fields in 2016 from a high of 321 fields in 2013.
Experts state that the draft process will take a long time, as several clauses require clarity. ReforMiner Institute researcher Pri Agung Rakhmanto said it was still unclear which direction the oil and gas sector would take under the new draft.
“The draft describes the establishment of a special state entity [BUK], but it also maintains that state-owned upstream and downstream firms should make deals with this new company” he said, adding that if Pertamina was chosen to be the BUK, it would mean Pertamina and its subsidiaries must make deals among themselves.
Jakarta Post, Page-13, Wednesday, June 7, 2017
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