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Indonesia: Oil and Gas Law to Be Revised

(Nov. 28, 2012) Indonesia’s Deputy Minister for Energy and Mineral Resources, Rudi Rubiandini, announced in mid-November 2012 that it will be necessary for the country to revise its law on oil and gas in order to implement a November 13 Constitutional Court ruling and to reduce uncertainty connected to oil and gas investment in Indonesia. According to Satya W. Yudha, a member of Indonesia’s House of Representatives’ Commission VII, which oversees the energy sector, if the process goes smoothly, the revised law should be approved by mid-2013. (Retno Ayuningtyas & Pamuji Slamet, Revised Oil and Gas Law Slated for 2013, THE JAKARTA GLOBE (Nov. 26, 2012).)

The Court ruling came in a case brought by academics and several prominent organizations, including Muhammadiyah, Indonesia’s second largest Muslim association. The Court decision invalidated provisions of the oil and gas law that allowed the state-owned legal entity, BPMigas, to regulate upstream oil and gas. The decision stated that the agency did not adequately work to use the natural resources to benefit the populace. (Id.; AWE Update on Indonesian Constitutional Court Ruling, YOUR OIL AND GAS NEWS (Nov. 14, 2012).)

According to the Court, articles 1, 4, 41, 44, 45, 48, 59, 61, and 63 of the 2001 Law on Petroleum and Natural Gas violate article 33 of the Indonesian Constitution. (Indonesian State Owned Upstream Oil and Gas Regulator Invalidated by Constitutional Court, JD SUPRA (Nov. 15, 2012); Undang-Undang Republik Indonesia Nomor 22 Tahun 2001 Tentang Minyak Dan Gas Bumi [Law No. 22/2001 of the Republic of Indonesia, on Petroleum and Natural Gas] (Nov. 23, 2001), Indonesian Ministry of Finance website, available in translation in PRICE WATERHOUSE COOPERS, OIL AND GAS IN INDONESIA: INVESTMENT AND TAXATION GUIDE, Appendix A: Law No. 22/2001 (May 2010).)

Article 33 of the Constitution states in section 3 that “[t]he land, the waters and the natural resources within shall be under the powers of the State and shall be used to the greatest benefit of the people.” (The 1945 Constitution of the Republic of Indonesia (as amended through 2002), Embassy of the Republic of Indonesia Washington DC website (unofficial translation).)

Rubiandini stated that government had been working on a revision of the law since 2011, but he did not mention the status of BPMigas. It is not yet clear what form of agency will take the place of BPMigas or what its budgetary arrangements will be. BPMigas remitted all its revenue to the state, except for the one percent it kept to cover management expenses. Under the revised law, there will be a petroleum fund based on capital from the revenue of oil and gas businesses. The fund will be used for research and development, thus assisting oil and gas contractors to locate additional reserves. (Ayuningtyas & Slamet, supra.)

The decision to end the role of BPMigas was not universally popular. Moody’s Investors Service, for example, said that the move was a negative one for Indonesia and that it might hamper investment. (Id.)