FOCUS: Nation waiting for a new oil and gas authority

As protests over the new oil and gas law have subsided, the public?s attention is now focused on the government?s efforts to establish the so-called Implementing Body, which will become the country?s highest oil and gas authority under the new law.

This agency, which is popularly called by local people as ?Balak?, will take over the decades-long rights held by state-owned oil and gas company Pertamina to regulate and manage the country?s oil and gas industry.

Several regulations are being made to execute the new law, but director general of oil and gas at the Ministry of Energy and Mineral Resources Rachmat Sudibyo said the government has put priorities on the regulation on the new agency.

Under the law, the government has to establish the new agency within one year after the implementation of the law. The law came into force last month.

?The new agency must be established in one year. But, we hope to do it faster so that Pertamina?s tasks and functions towards production sharing contractors could be transferred to the Implementing Body,? Rachmat said in an interview with Petromindo.Com last week.

Under the new law, the agency will play a role similar to the one being played by Pertamina?s current directorate of production sharing management (MPS), except for the fact that it is accountable to the President, while the latter to Pertamina?s president. The MPS directorate was formerly called the Foreign Contractors Supervisory Board (BPKA).

The Implementing Body will give consideration to the Minister of Energy and Mineral Resources on its policy regarding the preparation and offering concession to oil and gas contractors.

It will sign the oil and gas upstream contracts on behalf of the government and supervise the implementation of the contracts.

Contractors have to ask for its approval for their development plans.

And the agency will also appoint the seller of the state?s portion of the contractors? oil and gas production.

The law further says that a chairperson, who is appointed by and dismissed by the President after a consultation with the House of Representatives, will head the Implementing Body, which will consist of board of leaders, experts, technicians and administrators.

The explanation section of the law says the board of leaders consists of ?a head, vice head, and their deputies?.

?In performing his or her duty, (the head of the Implementing Body) shall be accountable to the President,? the law says, adding however that the agency has to report the results of its contractor supervision to the minister.

Experts and industry players, in several occasions, have given several inputs and advice to the government in making a ?good? regulation on the Implementing Body.

For instance, they suggest the regulation clearly stipulate the rights of the agency to sign contracts as well as its contractual responsibilities and liabilities. Is it liable for any losses in case of dispute with contractors?

The regulation should clearly stipulate that the government has transferred its execution of its mining rights to the new agency, the said.

And, they further said, the regulation should also clearly define the job description of the new agency in overseeing and managing the oil and gas contractors and in approving the contractors? budget and development plans.

They added that the regulation should also clearly stipulate the mechanism to be followed by the agency in reporting its works to the President.

Besides, the agency should consist of credible persons and the regulation should specify the expertise that should be owned by the agency?s staff, they said, adding that the agency should become an integrated center of licensing for contractors and potential investors.

They also raised questions as follows: Is it necessary to limit the number of deputies in the new agency and does the agency need to have representatives in the regions given the fact that many oil and gas operations are situated in the regions?

Meanwhile, Pertamina?s president Baihaki Hakim told Petromindo that the state company has asked the government to allow it to continue marketing the country?s liquefied natural gas (LNG) and selling the state?s oil and gas portion in the contractor?s production.

?Balak is basically similar to the MPS. As a matter of fact, the marketing of LNG has never been handled by the MPS. Thus, we don?t want the marketing of the LNG be transferred to the Balak.

?Besides, the sale of the state?s oil and gas portion is not actually the responsibility of the Balak. Thus we want that Pertamina be allowed to continue doing the job,? Baihaki said.

Rachmat said the government welcome any inputs from various parties for the drafting of the regulation on the Implementing Body.

The regulation would specify what remains unspecified in the new oil and gas law, including the agency?s organization, the number of its deputies, the mechanism to be followed by the agency in reporting its works to the President, he said.

With regards the agency?s organization, Rachmat said he does not expect the new agency will have representatives in the regions.

He said the central government and the regional administrations have recently agreed to establish the so-called ?Oil and Gas Team? in each oil and gas rich provinces to handle various oil and gas issues, including those regarding the distribution of oil and gas revenue among the central and central governments and the calculation of cost recovery. He said the Oil and Gas Team is enough to handle all oil and gas problems that occur in the regions.

With regards the staff of the new agency, the government will offer the current employees of Pertamina?s MPS directorate to move to the new agency as the government has no much time to recruit new people for the agency.

?Of course, the MPS directorate?s employees are free to decide. If some of them refuse to move, the agency will recruit workers from outside the directorate. The agency is open for professionals who are considered qualified to do the oil and gas supervisory jobs,? Rachmat said.

Rachmat noted that although the new law has named the Implementing Body as the highest authority in the country?s oil and gas upstream sector, which is accountable to the President, this does not mean the Minister of Energy and Mineral Resources will no longer have any role in formulating policy in the sector.

The minister will still be able to act as an intermediary between the agency and the President in the future, Rachmat said, adding the minister could also provide advice to the President regarding policies made the agency.

?In principle, (the Implementing Body) is accountable to the President ? But it may submit its reports (to the President ) through the Minister. It?s impossible for the President to read detailed and technical reports made by the Balak. Thus a minister is needed to evaluate the reports. Obviously, the Minister can give its judgement the President if the reports are good and acceptable,? Rachmat said.

Rachmat suggested the government will not meet requests from investors that the regulation on the implementing body clearly says that the agency is liable for any losses that might occur in case of dispute with contractors.

?The cooperation contracts which are allowed by the law is those which could pose financial risks on the government or Balak. All risks are to be shoulder by contractors. There are risks to be faced by the government or the Balak,? Rachmat said.

Some investors have said they preferred to sign contracts with Pertamina because the latter has property and assets they could confiscate in case Pertamina breaches the contract. The Implementing Body does not have such assets. (Godang/Bodega)