Ministry submits draft amendment to oil and gas law
Pertamina to be given privilege
Friday, April 10 2015 - 03:43 PM WIB
The draft amandment was submitted during a hearing on Wednesday between the minister during the House?s Commission VII which is in charge of energy affairs.
The amendment aims to provide legal certainty, improve investment business climate in the oil and gas sector and strengthen the national energy resilience, the ministry said in a statement released on Friday.
Key points in the draft amendment proposed by the ministry are among others that the government will set up a Secial State Owned Enteprise (SOE) which will enter into cooperation contracts with investors. The Special SOE will thus have a function similar to the one now being held by SKK Migas. Meanwhile, state owned oil and gas firm PT Pertamina (Persero) will have a special status in the sense that it will directly get business permits from the government for acreages which it can develop itself in terms of technology, funding and risks, the ministry said.
?The draft revision of the law explicitly mentions (support for) Pertamina because the government favors the state owned enterpris to flourish. What looked less clear in the past has become clear now, that is Pertamina will hold a privilege. Certainly, (the privilege will be given) on the grounds that Pertamina should continue improving its competitiveness,? Sudirman said during the hearing.
Under the draft amendment, downstream acitivities will still need licenses from the government and the government will establish a special SOE to do downstream business.
Other key points in the draft amendment conceringin upstream sector are as follows:
1. Title to natuaral resources lies with the government until to the point of delivery.
2. Oil and gas upstream activities is to be carried out based on Upstream Business Permit from the government.
3. Fiscal terms and conditions needs approval from the government
4. Pertamina will directly receive Upstream Business Permit from the government on certain working areas or expiring working areas.
5. Upstream Business Permit is effective for 30 years and is extendable for another 20 years.
6. Exploration period is ten years and exploitation period is 20 years.
7. The period of cooperation contracts that will be signed by the Special SOE and investors should come in line with the issued Upstream Business Permit
8. Domestic Market Obligation (DMO) is set at a minium of 25 % of production.
9. Special regulation will be made for non-conventional oil and gas
10. The government will carry out control and supervision (law and policy maker).
11. Upstream activities should be carried out in accordance with Upstream Business Permit that is issued by the govenrment to the Special SOE for any working area that will be developed.
12. The Special SOE will enter into cooperation contracts with investors.
13. The SOE which now develops working areas is considered to have received Upstgream Business Permit.
Key points concerning downstream sector are as follows:
1. The government prioritizes domestic utilization of oil and gas and is obliged to provide oil and gas strategic reserves.
2. The government is obliged to guarantee the availability and smooth distribution of oil fuels,, natural gas and LPG.
3. The government is reponsible for the availibility of infrastructures to support the availability and smooth distribution of oil fuels, natural gas and LPG.
4. The government determines oil fuel, natural gas, LPG prices to meet domestic needs.
5. The government will establish/appoint business entity to become crude oil and oil fuels aggregator
6. The government will establish/appoint business entity to become natural gas agregator.
7. Subsidy will be provided to people who deserve it in the form of direct subsidy than price subsidy.
8. There will be a downstream SOE with tasks of maintaining the national energy resilience and influencing price (price leader).
With regards oil fuel and crude oil downstream business, the draft amendement proposes as follows:
1. Oil fuel and crude oil downstream businesses will be performed based on Downstream Business Permit issued by or on the appointment by the government.
2. The government will assign Pertamina as National Oil Fuel and Crude Oil Aggregator.
3. Tasks of the National Oil Fuel and Crude Oil Aggregator includes securing national oil fuel reserve, securing crude oil reserve, purchasing crude oil from the domestic market or overseas, building infrastructures for crude oil and oil fuel processing, transportation and storage, marketing oil fuels domesticiallly (for consumers and business entities) and aggregating national oil fuel prices.
4. Business entities/regional government-owned governments/private companies/cooperatives may engage in oil fuel retail business and purchase oil fuel from aggregator.
With regards natural gas downstream business, the draft amendment proposes as follows:
1. The government will establish Natural Gas Regulatory Body
2. Natural gas retail business will be carried out based on Downstream Business Permit issued by or on appointment by the government.
3. The government will appoint a SOE as National Natural Gas Aggregator.
4. The National Natural Gas Aggregator will have tasks as follows: securing national natural gas reserve, purchasing natural gas from the domestic market, purchasing LNG from the domestic market and overseas, building natural gas infrastructures, selling natural gas domestically (to consumers and business entities), aggregating natural gas prices in their designated operating areas.
5. Business entities/regional governments-owned SOE/private companies/cooperatives can carry out retail business in certain areas/estates based on business permit from the government by buying gas from aggregator.
Editing by Johannes Simbolon