Indonesian Energy and Infrastructure Seminar Luke Devine Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. Oil & Gas Sector – Regulatory Developments, Opportunities and Challenges
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Indonesian Energy and Infrastructure Seminar
Luke Devine
Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
• New Oil and Gas Law– Pertamina’s status changed:
• Upstream: just another contractor• Downstream: continues monopoly in oil based
fuel supply until Nov 2005, then market opened• Pertamina in the process of undergoing corporate
restructuring– Must separate upstream and downstream business– Must spin-off geothermal assets into separate sub– Must place existing Work Areas in separate subs– Will need to put in place new intra-group contracts
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
New Upstream Regulation
• Transfer of PSC Participating Interests– Approvals
• Previously– Transfers to Affiliates: notification to BP Migas– Transfer of part of interest: BP Migas approval– Transfer of entire interest: Minister and BP Migas approval
• Now– All transfers require Minister approval
» not clear if this is still applicable for affiliates• Share transfers not restricted (but clean company option
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
New Upstream Regulation
• Transfer of PSC Participating Interests– Pre-emptive Rights
• If Contractor is selling interest to a non-affiliate or someone other than an existing PSC partner, Minister may request Contractor to offer in advance to a local company
– Local company = State company, Regional company, national company whose shares are owned entirely by Indonesian citizens
– Offer to be made based on “business customs”• This is a new requirement which may delay sales
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
New Upstream Regulation
• Domestic Market Obligation– Large area of concern and uncertainty– Previously
• Compulsory supply of portion of oil to Pertamina • Heavily subsidised price
– Now• Compulsory obligation for oil and gas up to 25% maximum• Price to be set at market price• Government to provide explicit subsidy to affected groups
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
• Key Features of GR 36 – Downstream Regulation– Processing Activities
• BU which is involved in processing activities, and also conducts transportation and storing as a continuation/supporting activities, is only required to obtain processing business activities
– Transportation Activities• BU which conducts gas transportation through pipelines at
the Transmission Line or the Distribution Network Area must obtain a Special Right from BPH Migas
• If BU conducts storing activities as a support to the transportation activities, no storing license is required
• BU must use cooperatives, small scale business and local companies (through tender process) for land transportation activities (other than through pipes)
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
• Key Features of GR 36 – Downstream Regulation– Trading (cont’d)
• General Trading Licensee (i.e. trading business through a network of agent or distributors) may carry out retail sale of oil based fuels to transportation users thorough facilities owned/managed by BU
• However such direct retail may only be carried out in up to 20% company owned/managed facilities
• Retail activities at the remaining 80% facilities that are owned/managed by such BU will be conducted by cooperatives, small scale enterprise or a national entity which will be distributing using the relevant BU’s trademark through cooperation agreement
• BU holding a trading business license for LPG must own/ control storing and bottling facilities
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
• Constitutional Court recent decision– BBM are commodities that are vital to the public
interest, and hence their pricing should be determined by the Government
– Retail fuel price cannot be determined by market, although Government in determining the price must consider the applicable price in a competitive market
– Impact of Court’s decision: • lessen Government’s ability to reduce subsidies and meet
state budget deficit target• Investor may want to reconsider their plan to distribute BBM
as sales price is set by Government and no longer up to market
Oil & Gas Sector - Regulatory Developments, Opportunities and Challenges
BP Migas Procurement Regulation
• Requirements for seeking BP Migas approvals for procurement contracts– Approval for tenders > $2m– Approval for selection of winning bidder >$5m– Approval required for scope of work changes