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Jakarta Post
The Jakarta Post
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Editorial: Legal black hole in oil sector

  • The Jakarta Post

    The Jakarta Post

| Mon, May 13, 2013 | 11:02 am

The Jakarta Corruption Court'€™s decision to imprison executives from two of PT Chevron Pacific Indonesia'€™s (CPI) contractors for their roles in a corruption case involving the US oil company'€™s environmental project should send a chill through the petroleum industry, causing especially foreign oil investors to cringe.

The verdict further highlights the uncertain legal and regulatory climate facing international oil and gas companies in Indonesia, which has contributed to dwindling production to as low as 830,000 barrels per day (bpd) now from as high as 1.2 million bpd a few years ago.

The court sentenced on Wednesday the director of environmental services company PT Green Planet Indonesia, Ricksy Prematuri, and director of construction services firm PT Sumigita Jaya, Herlan bin Ompo, to five and six years in jail, respectively, after finding both executives guilty of causing state losses.

Both Ricksy and Herlan must also pay respectively fines of Rp 200 million (US$20,600) and Rp 250 million, according to the court'€™s verdict. Green Planet was ordered by the court to refund $3.089 million in state losses within a month or the court would confiscate the company'€™s assets, while Sumigita was ordered to reimburse $6.9 million in state losses.

No less than the upstream oil regulatory body (SKK Migas) itself has condemned the court decision as groundless, pointing out the state did not lose a single cent because CPI has not been reimbursed for its US$9.9 million spending on the environmental project.

 SKK Migas had insisted from the outset that the CPI bioremediation project in Riau was real and had been approved by the regulator and the Environment Ministry, but the Attorney General'€™s Office (AGO) had stubbornly built up that case and submitted it to the court as a corruption case.

This verdict is really devastating for the three CPI employees, who also have been indicted for corruption on the same project.

 Most legal experts have argued that any dispute arising within the production-sharing contract under which CPI, the largest oil producer in the country, operates should be settled as a civil, not criminal, case.

CPI should certainly appeal against the court verdict and the Jakarta High Corruption Court should certainly throw it out. But significant uncertainty now looms over the oil industry, taking into account the '€œjungle'€ of law enforcement in the country.

Only a few weeks ago, the oil regulatory taskforce conveyed bad news from the oil industry, revealing that several big oil production-sharing contractors (PSCs), including such giants as ExxonMobil and Norway'€™s Statoil, had relinquished and returned to the government their offshore oil concessions in the eastern region.

These contractors were among the dozen PSCs that had spent more than US$1.60 billion on deep-water explorations off Papua, Sulawesi and Maluku between 2009 and 2012 but struck only dry holes.

That news is really worrisome because most of the undiscovered, prospective oil basins in the country are located in the frontier eastern region. This region is believed to hold potentially big reserves, which are not proven yet, but their prospecting requires sophisticated technology and huge investment, estimated at 10 times as much as those in Java and Sumatra.

It is because of these special characteristics that oil and gas prospecting requires strong legal certainty, especially in Indonesia where oil mining contractors bear all the risks.

 But the verdict against the CPI bioremediation project could severely damage the legal certainty.