OIL, GAS MANAGEMENT NEEDS DEFINITE REGULATOR

By Andi Abdussalam

Jakarta, Dec 21 (ANTARA) - Observers have suggested that the government should appoint a definite state institution to handle the country's oil and gas business after the Constitutional Court (MK) dissolved last month the Upstream Oil and Gas Regulator (BP Migas).          In the wake of the dissolution of the BP Migas on November 12, the government set up the Interim Working Unit for the Implementation of Upstream Oil and Gas Activities (SKSP Migas), under the Ministry of Energy and Mineral Resources, which took over the functions of BP Migas.          However, SKSP Migas is an interim body and must be replaced by a state-owned entity that should exclusively handle upstream oil and gas activities. The role of BP Migas is expected to be taken over by state-owned oil and gas company Pertamina.          "The dismantled BP Migas, whose role is being taken over by the SKSP Migas, should be replaced by Pertamina, as per the rules of the Constitution," said Marwan Batubara, the executive director of Indonesian Resources Studies, on Thursday.            "Pertamina will stand to gain if takes over the tasks of SKSP Migas. Such a move will help Pertamina become stronger and play a more dominant role. The step would be in line with Constitutional requirements and many countries have practised these actions to reinforce their state companies,¿ he pointed out.          "In the past, we used to have many national companies doing business in the oil and gas sector. However, for the sake of efficiency these companies were merged into one entity," Marwan continued.          "Voices have been raised from many quarters about the performance of Pertamina, which have not only accused it of monopolising the market, but also of being steeped in corruption, collusion and nepotism ¿ but these are just individual opinions,¿ he noted.          "If corruption is found to be prevalent in Pertamina, the President or the minister can directly replace the board of directors," Marwan stated.          He suggested that the government issue a regulation (Perpu) on transferring the responsibilities of BP Migas over to Pertamina as soon as possible.          The Constitutional Court on November 1 dissolved BP Migas after reviewing Law No. 22/2001 on oil and gas on grounds that it ran counter to the 1945 Constitution and had no legal binding.          The Constitutional Court ruled that the articles governing the tasks and functions of BP Migas under the law ¿are against the Constitution and therefore not legally binding¿.          The articles found to be unconstitutional were Article 11 sub-article (1), Article 20 sub-article (3), Article 21 sub-article (1), and Article 49.      "All matters relating to the executive body in the elucidation of the oil and gas law contradict the 1945 Constitution and have no legal binding," MK chairman Mahfud MD had said then.          The Constitutional Court also ruled that Article 1 point 23, Article 4 sub-article (3), Article 41 sub-article (2), Article 44, Article 45, Article 48 sub-article (1), Article 59 letter a, Article 61, and Article 63 of the oil and gas law were against the constitution and had no binding legal force.          Ongoing contracts, which were signed under the management of BP Migas will remain effective until their expiry dates. "Or they will remain effective until new contracts are put in place," Mahfud said.          Meanwhile, economic analyst Ichsanuddin Noorsy stated that Pertamina should not be the only regulator of the country¿s oil business activities, and another state-owned company should be set up as its competitor in the oil and gas field.          "With the presence of a competitor, Pertamina would be forced to improve its performance," he said during an open discussion on oil and gas investors in Indonesia on December 19.          "Take China, for example. They have three state-owned companies in the oil and gas sector," Ichsanuddin pointed out.          He said Pertamina, on the other hand, had been facing no competition for a long time. Therefore, Ichsanuddin added, the time had come for the government to establish a new state-owned company which would become Pertamina's competitor.          "This will create competition between the two companies and they will perform better," Ichsanuddin explained.          "The time needed to establish a new state firm is not too long; it will take only about three to six months," he noted.          Therefore, a mining observer from the ReforMiner Institute, Pri Agung Rakhmanto called on the government to replace SKSP Migas with a state firm.          "There are three ways through which this can be done," he said.          "The first option involves establishing a new state company by replacing SKSP. The new state firm should handle upstream oil and gas contracts but it should not have contracts with Pertamina. The second option is that SKSP should be transformed into a state company that would handle the upstream oil and gas business would not have contracts with Pertamina. The third option is for the government to restructure PERTAMINA in a way that its subsidiaries 'PT PERTAMINA EP and PT PERTAMINA Hula Energy' become two separate state-owned oil and gas firms," Rakhmanto stated.          "PT Pertamina EP will handle contracts and portfolio investment in upstream oil and gas activities while Pertamina Hulu Energi will handle the oil field blocks," he added.          "Besides, the management of upstream oil exploitation should be on a business to business (B2B) basis. This means that oil contractors should make deals with state-owned companies and not with the government (G2B)," Rakhmanto said.          He pointed out that the B2B system was in line with the mandate of 1945 Constitution and it minimized uncertainties. On the other hand, the G2B system was unconstitutional because it made the state vulnerable to being sued.          "The B2B scheme will protect businesses from demands for nationalization, termination and contract revisions," Rakhmanto said, adding that the production sharing contract (PSC) that had been already implemented would remain effective.          Based on Law No.22/2001 on oil and gas, the exploitation of upstream oil and gas should involve two government institutions, namely the oil and gas directorate general (G1) and BP Migas (G2).          "G1 will call tenders, while G2 will sign and execute contracts," Rakhmanto stated.     (T.A014/A/INE/B003) (T.A014/A/KR-BSR/B003) 21-12-2012 21:16