Summary of governmental regulation on downstream sector
Wednesday, October 20 2004 - 01:04 AM WIB
President Megawati Soekarnoputri signed the long-awaited governmental regulation on downstream sector on October 14, 2004. The regulation sets guidelines for the implementation of Oil and Gas Law No: 22/2001 in the sector.
The following is the summary of the regulation.
1. Minister in charge of energy affairs holds the rights to issue licenses for business entities to engage in downstream business; set types, standards and quality of fuel; guarantee the availability and distribution of fuel across the country; regulate the use of gas; determine the country?s strategic crude and oil-based fuel reserves as well as the blueprint of the National Gas Transmission and Distribution Network; and determine the prices of special fuel products (gasoline, diesel oil, kerosene) until the establishment of a system where prices are determined by competition in the market.
2. Downstream authority BPH Migas regulates and oversees the provision, distribution and transportation of oil-based fuel and gas by companies that have obtained licenses from minister.
3. Downstream activities include the processing of crude oil and gas into fuel, other products, LPG and/or LNG; the transportation of the processed oil and gas products, including the transportation of gas through pipeline; the storage of oil and gas processed products; and the sale, purchase, exportation and importation of oil and gas processed products. The processing of gas into LPG, LNG and GTL is categorized as a downstream activity as long as it aims to gain profit and is not a continuation of an upstream operation.
4. In order to conduct processing activities, companies need to obtain ?processing license? from minister in charge of energy affairs. The holders of ?processing license? can also transport, store and sell their products. They don?t need to apply for new licenses in order to transport and store their products. But, aside from the ?processing license?, they have to apply for ?trading license? in order to sell their products.
5. The processing of gas, crude and processed products into lubricants and petrochemical products is categorized as a downstream operation, which is to be jointly regulated by ministers in charge of energy and industry affairs. As far as lubricant production is concerned, the license is issued by industry minister, while the quality and type is set by energy minister.
6. In order to transport processed oil and gas products, a company needs to obtain ?transportation license? from minister in charge of energy affairs unless it already has a ?processing license? and the transportation is related to its oil and gas processing activities.
7. In order to transport gas through pipeline, a company needs to obtain a ?special right? from BPH Migas. The agency awards one company a gas-pipeline-transportation right for a certain area and the natural gas pipeline should be developed in accordance with the Blueprint of the National Gas Transmission and Distribution Network, which is made by minister based on inputs from BPH Migas.
8. Gas-pipeline operators are obliged to allow other companies to use their facilities. Tariff for the use of the pipeline is determined by BPH Migas.
9. In case of shortage of fuel and in remote places, companies are obligated to allow other companies to use their transportation means.
10. In order to store processed oil and gas products, a company needs to obtain ?storage license? unless it already has a ?processing license? or ?transportation license? and the storage activities are related to its oil and gas processing or transportation activities.
11. In case of fuel shortage and in remote places, companies are obligated to allow other companies to use their storage facilities.
12. Companies which do business in LNG storage needs to obtain ?LNG storage license?. Minister will determine the requirements and guidelines for the issuance of this license.
13. In order to sell fuel, a company needs to obtain ?fuel trading license?. The holder of ?trading license? does not need to have ?transportation license? or ?storage license? in order to transport and store their products as long as the transportation and storage activities are related to its trading activities.
14. There are two types of fuel trading license: ?wholesaler license? and ?limited trading license?. A ?wholesaler license? is given to companies that want to sell or export or import processed oil and gas products in bulk and have own storage facilities. A ?limited trading license? is given to companies that want to sell or export or import processed oil and gas products in bulk but does not have storage facilities of their own. Wholesalers can distribute their commodities to all consumers, while the holders of limited trading licenses can only sell their commodities to users who have storage facilities, port facilities or receiving terminal.
15. Holders of wholesale license can?t sell gasoline, diesel, kerosene, gas and LPG to small users, transportations owners, and households by themselves. Instead, they have to sell the commodities through agents, retailers or distributors appointed by the wholesalers through selection.
16. In selecting agents, retailers and distributors for their commodities, wholesalers should prioritize cooperatives, small enterprises and national companies.
17. Large users who have port facilities or receiving terminal can import fuel, LPG and LNG and other fuel products by themselves for their own use after receiving a ?recommendation? from minister. However, these users are not allowed to resell the products.
18. Companies who own or do not own distribution pipelines can conduct gas trading. Companies who do not own distribution pipelines can conduct gas trading using the distribution network owned by companies that own such facilities after receiving trade licenses.
19. Companies that want to trade in LPG must have storage facilities as well as LPG bottling plant in order to get licenses.
20. The government builds the national Strategic Oil Reserve using imported or domestically purchased oil. The government can assign certain companies to build the reserves. Companies qualified for the task are processing companies that have or control refineries facilities.
21. The government sets up policy on the amount and type of the national Strategic Fuel Reserve. The government can obligate the holders of downstream license to contribute to the reserve. The government determines the size of contribution of each company. The reserve will be used in case of fuel shortage.
22. With regards the prices of gasoline, diesel and kerosene, the government will gradually let the market?s fair, healthy and transparent competition determine the prices. The government determines whether certain areas are ready or not yet ready for competition the government determines prices of special fuel products for the areas considered still unprepared for free-market competition.
23. BPH Migas sets the price of gas for small customers and households, while the price for other types users is determined by market mechanism.
24. A wholesaler can sell gasoline and diesel to transportation owners through its own and self-operated facilities (gas stations). However, the wholesaler can conduct the retail activities at a maximum of 20 percent of its own facilities. The rest of the facilities must be operated by cooperatives or small enterprises or national enterprises that are tied in a cooperation agreement with the wholesaler. The cooperatives, small enterprises and national enterprises can only sell products that carry the wholesaler? brands. Minister will set regulations regarding this matter based on advice from BPH Migas.
25. Cooperatives, small enterprises and national companies can develop their own retail facilities and operate them in cooperation with certain wholesalers.
26. Individuals or companies who illegally copy the formula or alter the contents of processed oil and gas produced by certain companies are threatened with a maximum of six-year jail term and Rp 60 billion in fine. Those who abuse subsidized fuel also face similar jail-term and fine threats. (*)