FOCUS: Govt preparing to issue decree on oil and gas downstream authority

By: Hans Bodega and Godang Sitompul

The government is preparing the Governmental Regulation on the Regulatory Body, which will replace state oil and gas company Pertamina as the highest authority in the country?s oil and gas downstream sector

Under the draft regulation made available to Petromindo. Com, the agency will oversee and regulate the distribution, storage and sale of oil fuel and gas across the country and select companies to operate pipelines for gas transmission.

T.A. Nurwinakun, head of the public relation and legal office at the Ministry of Energy and Mineral Resources, said the draft had been submitted to the State Secretariat for a final study before being forwarded to President Megawati Soekarnoptri for approval.

?The regulation is expected to be approved (by the President) this month,? Nurwinakun told Petromindo recently.

The Regulatory Body, which is locally known by the acronym ?Batur?, is one of the two agencies to be established by the government as part of the restructuring of the national oil and gas industry in accordance with the Oil and Gas Law No. 22/2001. The other agency is BP Migas, the highest authority in the upstream sector, established in August this year.

Both agencies are assigned to take over supervisory role over the upstream and downstream sectors performed by Pertamina for decades until the implementation of the new law.

The oil and gas law breaks down the downstream sector into four sub-sectors: processing, storage, distribution and trading. While the Batur draft regulation explicitly says that the agency is assigned to supervise and regulate oil fuel and natural gas storage, distribution and trading, there is no clause in the regulation mentioning about processing activities. This, analysts say, indicate that refineries will not be put under the supervision of the new agency.

Under the oil and gas law, the government issues licenses for downstream activities and ?in matters regarding the regional interests, the government shall issue a business license after the relevant business entity obtains recommendation from the regional government?.

This means Batur will not issue business licenses, but it can propose the government revoke a business license or punish a company, should the company violates the rule or fail to perform.

However, as far as natural gas is concerned, the draft regulation stipulates that Batur has the right to issue ?exclusive rights? for companies to run gas-distribution-via-pipeline business in certain areas. The agency has also right to revoke this business license, the regulation says, adding that Batur has to carry out a tender process in selecting companies to receive such licenses.

Today, the gas transmission is fully controlled by Pertamina and state-owned gas transmission and distribution firm PT PGN. However, the oil and gas law has opened up the sector to private companies.

The law stipulates that the government will work on a master plan for national network for the transmission and distribution of natural gas as a reference for investors to develop and construct their own pipelines. But, an investor shall only be granted the right to develop and construct pipelines on a certain segment of the national gas pipeline network.

?This provision is intended to encourage fair business competition and to improve efficiency in the use of infrastructures as well as the service quality,? the law says in its explanation section.

Under the draft regulation, Batur will determine the gas transmission fee, which subject to an approval from the Ministry of Finance, and the price of gas for ?households and small customers? in view of the public?s purchasing power.

However, there is no clause in the regulation stipulating that Batur will also determine the prices for oil fuels. Today, oil fuel prices, which have been heavily subsidized by the government, are jointly determined by the government and the House of Representatives.

The government has planned to scrap subsidies for all types of oil fuels, except for kerosene for households, next year and the remaining subsidy for kerosene in 2004. This will certainly raise the interests of private sector to enter the business. The draft regulation indicates however that some backward areas of the country will still not be ready to implement a free market system in fuel business in the near future. It thus gives Batur the right to oblige fuel companies to provide and distribute their products in those areas.

Batur also holds the right to determine the amount of fuel to be allocated by each company for ?the national fuel reserve? and the right to order any company to allow other companies to use its facilities for the distribution of fuel in remote areas, according to the draft regulation.

Under the draft regulation, Batur will comprise of a committee and several divisions or directorates.

A committee will comprise of nine persons, including one chairman-cum-member and eight members, who are all professionals. The committee members shall be appointed and dismissed by the President on the approval from the House of Representatives, based on the recommendation from the minister in charge of oil and gas affairs. The committee chairman will serve as Batur?s chairman, who is accountable to the President. All committee members will serve for four years and can be re-appointed for another term.

Batur will have a maximum five divisions or directorates. One directorate will act as Batur?s secretariat handling the administrative affairs, while other directorates will function to facilitate the works of the committee.

The secretariat will comprise of four sections, which is respectively composed of three sub-sections, while other directorates will respectively consist of several task forces.

All directorate or division heads as well as their subordinates have the status of governmental officials and will be supervised by the minister in charge of oil and gas affairs.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro told Petromindo that the division heads and their subordinates would be recruited from among the ministry?s officials.

Batur will charge some fees on any companies in the downstream sector and use the funds to remunerate its staff. The Ministry of Finance, based on the proposal from the agency, will decide the amount of fee payable by the companies. The excess fees collected by the agency should be delivered to the ministry, the draft regulation says.

With regards the Batur committee, Nurwinakun said the ministry had called on any member of the public who are interested to become a member of the committee to register themselves with the ministry. Thus far, the ministry has thus far received 66 names.

?Among the names are Tubagus Haryono, the member of the House?s Commission VIII and Ery Hadi Purnomo, the head of the Association of the National Oil and Gas Private Companies (Hiswana Migas),? Nurwinakun said.

The ministry?s training and education section, assisted by the Pajajaran University of Bandung, was selecting the names, Nurwinakun said, adding that 18 names would be submitted to the House for a fit and proper tests.