Summary of governmental regulation on upstream sector
Thursday, October 21 2004 - 01:11 AM WIB
Former President Megawati Soekarnoputri signed the long-awaited governmental regulation on upstream sector on October 14, 2004. The regulation provides guidelines for the implementation of Oil and Gas Law No. 22/2001 for the sector.
The following is the summary of the regulation:
1. Minister in charge of oil and gas affairs plans and prepares work areas to be offered to companies or business entities in consideration of advice from upstream authority BP Migas and in consultation with governors who govern the region where the work areas are located The work areas are offered through auction or direct offer, but a company or a business entity can apply for a certain work area.
2. In case PT Pertamina (Persero) applies for a certain work area, minister can grant the request in consideration of its work program, technical and financial capabilities and as long as the firm is wholly owned by the government. The firm is however barred from applying for work areas on offer.
3. In coordination with BP Migas, minister decides which companies or business entities to win auction or get work areas through direct offer. The decision is based on evaluations made by the evaluation teams set up the minister. One company or business entity can only get one work area.
4. Contractors are obliged to gradually return their work areas in parts or as a whole to minister through BP Migas in accordance with their contracts. They may return their work areas before their contracts end, after fulfilling their exploration commitment and other obligations. The returned areas become ?open areas?.
5. In order to support the preparation of work areas, minister may license a company to carry out general surveys on open areas. The company carries out the surveys on its own costs and risks and is allowed to store and benefit from the survey data throughout their license?s period. Once their license expires, it has to return the data to the government.
6. Data collected from general survey and explorations are considered as the government?s property and minister is to issue regulation on the management and utilization of the data.
7. Contractors can manage data collected from exploration and exploitation activities throughout the cooperation contract and, on permission from minister, can store copies of the data outside the country. They can appoint a third party to manage the data on permission from minister. Contractors are however not allowed to destroy the data. Once their contracts end, contractors have to return the data to minister through BP Migas. Contractors whose contracts end and those who transfer contracts to other companies may ask permission to keep and use the copies of their exploration and exploitation data, but they are not allowed to transfer the data to other parties without permission from minister.
8. Contractors have to submit their exploration and exploitation data to minister through BP Migas within three months at the latest after completing the collection, processing and interpretation of the data
9. Data exchange between contractors in the country and overseas requires permission from minister.
10. In terms of confidentiality, data are divided into four: ?general data? (on geographic locations of oil and gas resources, fields and production), ?basic data? (on the results of geological, geophysical, geo-chemical surveys of drilling and production activities), ?processed data? (analysis results of basic data) and ?interpretation data? (analysis results of basic and processed data). Confidentiality of basic data lasts four years, processed data six years, interpretation data eight years.
11. Once a contract ends, all data regarding the work area is no longer considered confidential.
12. Contractors sign cooperation contract with BP Migas. The cooperation contract consists two types, that is production sharing contract and service contract. Under both contracts, oil and gas are considered as the government?s property until the point of delivery; BP Migas controls the management of contractors? operation; and contractors bear the costs and risks of their operation. BP Migas will notify the contracts that it has signed to the House of Representatives.
13. Management control means BP Migas approves contractors? work and budget plans as well as plans of field development and oversees the execution of the plans.
14. A contract is valid for 30 years, including exploration and exploitation periods. Exploration period is six years, but contractors are allowed to ask for an extension for their contracts for another four years. If a contractor fails to find oil or gas of commercial value within the exploration period, it has to return the entire work area to minister
15. Contractors can ask for an extension for their contracts for another 20 years. The request must be submitted ten years at the earliest and two years at the latest before their contracts end. Contractors who are tied with a gas sale contract can submit requests earlier than the above deadline.
16. Minister can reject and approve the request in consideration of several factors, including the potential reserves of the work areas, market potentials and economic and technical feasibility. PT Pertamina (persero) may apply for work areas on which contracts are going to expire and the government can grant the request in consideration of the firm?s work program, financial and technical capabilities and as long as the government still wholly owns the firm.
17. Contractors may ask to amend their contracts and minister can approve or reject the request.
18. In 180 days after their contract become effective, contractors are obliged to start activities. If they fail to do so, BP Migas may ask approval from minister to cease the contracts.
19. In the first three years of exploration, contractors are obliged to carry out fixed work program at the expenditure amount set in the contract. If contractors can?t carry out the fixed work program due to economic and technical problems, they, through BP Migas, can propose a change in the fixed work program to minister. However, if contractors decide to end the contract before completing the fixed work program, they have to pay the remaining expenditure allocations for the work program to the government, through BP Migas.
20. A contractor is allowed to transfer its participating interests to other parties on permission from minister. If the contractor intends to transfer the interest to non-affiliated companies or partners in the work area, minister can ask the contractor to first offer the interest to national companies.
21. Contractors are not allowed to transfer most of its interest to non-affiliated companies within the first three years of exploration.
22. Once a contractor gets an approval for its plan of first field development, it is obliged to offer a 10 percent participating interest to regional government-owned companies (BUMD). The BUMD has to express interest and capability to buy the offered participating interest within 60 days after the offer is made. In case the BUMD fails to meet the deadline, contractors are obligated to offer the interest to national companies. If no national companies make response in 60 days, the offer is closed.
23. Contractors are obliged to allocate funds for post-operation program.
24. Contracts are written in Indonesian and/or English. In case of dispute, the Indonesian or English versions of the contract will be used as reference depending on the contract. The contracts follow Indonesian laws.
25. Contractors are obliged to report oil and gas discoveries and certification results to minister through BP Migas. They must also report to minister in case the oil and gas reserves extend to other work area or other countries? continental shelf. They have to carry out unitization in case the reserves extend to other work area.
26. Contractors are obliged to meet domestic demands for oil and gas. Minister decides the amount of oil and gas to be allocated by contractors for domestic market based on a pro-rata system. The amount is set at a maximum 25 percent of contractors? output.
27. Contractors are obliged to pay fiscal and non-fiscal obligation to the government. Government?s fiscal revenue from oil and gas include taxes, import duties, regional taxes and retributions, while non-fiscal revenues include government share, dead rent, exploration and exploitation fees and bonuses. Central government will share non-fiscal revenues with regional governments.
28. Contractors may choose either to follow tax regulations applied during the signing of contracts or current tax regulations.
29. In case they want to use land owned by members of the public or state for their operations, prior to operations, contractors have to negotiate with landowners or users of state lands to acquire the lands and give them compensations for the acquisition of the lands. The compensations may be in the form of cash, lands for their new settlement, etc.
30. Contractors must participate in developing communities surrounding their operating sites. They could do this by prioritizing local people in their recruitment program and provide funds to develop the communities. They must coordinate with local governments in carrying out their community development program.
31. Contractors must prioritize the use of local service, goods and technology in their operations. However, they can import the service, goods and technology as long as local companies can not provide the goods, service and technology at required standards, price and time delivery.
32. Contractors must prioritize Indonesians to be workers but they can hire foreign workers to do skilled jobs that cannot be carried out by locals.
33. BP Migas has the right to appoint contractors or other companies to sell the government?s oil and gas share. BP Migas however must consult with contractors in case it wants to appoint other companies to sell the government?s share.
34. Production sharing contracts and other contracts previously signed by Pertamina remain valid until they expire with BP Migas now taking over the contracts.
35. BP Migas takes over joint operating agreement (JOA) and joint operating body (JOB) contracts from Pertamina. The contracts remain valid until they expire and Pertamina?s participating interests in both types of contract are now transferred to PT Pertamina (Persero). Minister will decide the types of contracts for work areas now under JOA and JOB once the contracts expire.
36. Technical assistance contract (TAC) and enhanced oil recovery (EOR) contract signed by Pertamina remain valid until they expire. The contracts are now transferred to PT Pertamina (Persero). Pertamina will keep control of work areas now under TAC and EOR once the current TAC and EOR expire and as long as the areas are part of Pertamina?s mining authority area.
37. PT Pertamina is obliged to enter into a cooperation contact with BP Migas to continue explorations and exploitations on its mining authority areas. In a maximum two years, the company must set up subsidiaries to enter into cooperation contracts with BP Migas for each of the work areas now controlled by the firm. The contracts are valid for 30 years and can be extended in accordance with the existing regulations.
38. Minister determines the types and terms of cooperation contracts with PT Pertamina (Persero) and its subsidiaries. PT Pertamina (persero) and subsidiaries pays their obligations to the government at the amount set in the regulation on Pertamina?s mining authority areas. This special clause aims to develop PT Pertamina (persero) to become a competitive company.
39. LNG contracts between Pertamina and other parties are now transferred to PT Pertamina (Persero).