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House-initiated oil bill
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Illustration of worker in oil and gas industry. (Shutterstock/File)
I
t is encouraging to learn that the House of Representatives will start deliberating the long-awaited oil and natural gas bill after the April presidential and legislative elections. Hopefully this is not another false signal in the political process to amend the 2001 Oil and Gas Law, which became imperative after the dissolution of upstream oil and gas regulator BP Migas by the Constitutional Court in November 2012.
The bill has now become House-initiated draft legislation and “we only await the green light of the government [President] to start its deliberation after the elections”, asserted Tjatur Sapto Edy, a member of House Commission VII overseeing energy, mineral resources, the environment and research last week.
Deliberating a bill on natural resources after the election will protect the debate from excessive nationalist sentiment, which usually raises its ugly head during an election campaign.
The House initiative to speed up the political process of drafting the legislation also shows the political awareness about the urgent need to enact a new oil and gas law because many things in the fuel industry are now ruled and administered under government regulations since the termination of BP Migas. SKK Migas under the Energy and Mineral Resources Ministry, which took over the authority of BP Migas in 2012 is an ad hoc regulatory body that can be disbanded at any time.
Investment in such natural-resource development as hydrocarbons requires strong legal certainty for at least 20 years because of the long-term nature of its operations. An oil contractor may need at least 25 to 30 years to recoup its investment because an oil field may need at least five to seven years, starting with seismic surveys and exploration before production begins. The existing standard production-sharing contract (PSC), which is valid for 30 years with an option for a 10-year extension, has long been considered adequate.
But government regulations provide much weaker legal certainty than that based on laws because the former are vulnerable to changes along with the five-year political cycle of the government. This, we think, is one of the barriers to the promotion of the gross-split scheme to replace the standard PSC, which has often become embroiled in disputes over the controversial cost-recovery mechanism.
As a country that depends on imports for almost 60 percent of its daily oil need of 1.6 million barrels, Indonesia badly needs to attract more investment in highly risky oil exploration. Providing certainty, stability and a favorable regulatory environment will encourage future oil exploration and development investment.
The bill stipulates several schemes for private participation in oil and gas prospecting, including production-sharing, gross split and other partnerships and puts the upstream oil and gas regulatory body under the Oil and Natural Gas Directorate General. Other important features include a mandatory 10 percent participating interest for regional administrations in oil concessions and the establishment of a petroleum fund for improving the geological data on oil blocks and a state company to represent the government in oil contracts.
