The Indonesian Constitutional Court ruled yesterday to disband the
upstream oil and gas regulator BPMigas, adding further legal uncertainties to
the country's oil and gas sector.
The court's chief justice, Mahfud
MD, said the ruling was made in line with the request filed by 42 organisations
including Muhammadiyah — Indonesia's second largest Muslim groups — and several
scholars to review the 2001 law on oil and gas.
"As of today [Tuesday], the
rights and authority of BPMigas over production sharing contracts [PSCs] will
be taken over by the government, in this case, the Energy and Mineral Resources
Ministry, until there is a new law that can be used as a foundation of the
supervisory body," the chief justice said in his ruling.
"All of the existing oil and
gas contracts will be unaffected until they expire."
Mahfud said that BPMigas had been
dissolved because its existence was against Article 33 of the Constitution that
stipulates the state should make the most benefits from the country's natural
resources for the people's welfare.
The court’s panel of judges found
that the agency did not directly run the country's oil and gas resources but
rather handed it over to state-owned or private companies through
production-sharing contracts.
Speaking following the issuance
of the court's ruling, Hatta Rajasa, coordinating economic minister said that
the government would issue a new regulation to ensure the functions of BPMigas
would be carried out under the energy ministry.
Separately, Energy and Mineral
Resources Minister Jero Wacik said the court's decision would not affect the
existing PSCs awarded to oil and gas companies.
"All of the functions of
BPMigas have been turned over to the energy minister, so business will go on as
usual. I am also asking for all employees of BPMigas to remain calm and we will
try to solve all of this by this evening," he said.
BPMigas was formed in July 2002
under Law No. 22/2001 on oil and gas as part of Southeast Asia's largest
economy's restructuring scheme for its upstream oil and gas business.
The bureau took over the
management and overseeing of the upstream oil and gas industry from state oil
and gas firm PT Pertamina, which had previously possessed special controlling
rights over the industry for decades.
Meanwhile, the disbanded body's
chairman, R. Priyono, said many oil and gas projects would have to be halted
following the court's decision, adding that it could also hinder liquefied
natural gas (LNG) ship shipments from Indonesia.
"We have calculated that the
potential losses from the ongoing contracts — around 60 PSCs — will be about
US$70 billion, due to this legal situation," he said.
The court's verdict added more
twists to ongoing legal uncertainties faced by companies in the oil and gas
sector over the government's unresolved stance over 29 concessions slated to
expire between 2013 and 2021 such as Mahakam Block in East Kalimantan.
Indonesian Petroleum Association
(IPA) vice chairman Sammy Hamzah said the ruling would distress investors who
remain uninformed over the effect it will have on existing PSCs.
"We are shocked to hear this
as many contracts were signed by BPMigas and [with the disbandment] what will
happen to the status of the ongoing projects … There are so many things the
government needs to clarify to us," he said in a telephone interview.
The association has 52 members
with many of being global oil and gas giants, which account for about 90 per
cent of Indonesia's production.
Amahl S. Azwar
Business & Investment Opportunities
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