Indonesia Takes On Energy Oversight After Regulator Wound Up

The Indonesian government will assume responsibility for overseeing the nation’s oil and gas activities, President Susilo Bambang Yudhoyono said, a day after the industry regulator was dissolved by a court.

A new unit within the Energy and Mineral Resources Ministry will handle BPMigas’s role for a transition period, Yudhoyono said today at a press conference, confirming earlier remarks by Deputy Energy Minister Rudi Rubiandini.

“The presidential decree aims at preventing a regulatory vacuum and providing certainty for oil and gas industry,” Yudhoyono said in Jakarta. All oil and gas contracts remain valid and all operational activities will go on as they should be, he said.

BPMigas was dissolved yesterday by the nation’s Constitutional Court, raising concern that shipments of liquefied natural gas would be reduced. Indonesia is the world’s third-largest exporter of the fuel, according to BP Plc’s Statistical Review of World Energy. BPMigas had been created under a 2001 law that violated the nation’s constitution, according to the court.

The new unit will assume responsibility for approving the development of new fields, work programs and budgets, and approving exports of oil and gas, Rubiandini said in a text message earlier today. The office will continue to operate until the 2001 legislation is amended, he said.

The 2001 decree established BPMigas with jurisdiction to grant production-sharing contracts to explore for hydrocarbons in Indonesia. The agency also appoints sellers for the government’s share of oil and gas output.

New Regulation

The court decision may lead to a transfer of BPMigas’s responsibility for signing production sharing contracts with investors back to government-owned companies, Shaun Levine, Eurasia Group’s Asia analyst based in Washington, D.C., said in a note yesterday. PT Pertamina, the state oil company, filled this role before 2001.

The government will start drafting a new law to ensure certainty and improve the country’s oil and gas business, Yudhoyono said.

“This decision worsens the long-term outlook for investment in the Indonesian oil and gas sector and for production expectations from the country,” said Levine. “Pertamina has neither the competence nor money for the exploration and development needed to maintain or increase production.”

Outlook Worsens

State-owned gas utility PT Perusahaan Gas Negara and electric company PT Perusahaan Listrik Negara may also see an increased regulatory role, said Levine.

Existing contracts will remain valid, according to the court ruling and Indonesian government ministers.

“That makes it likely that no substantial disruption will take place with regard to regulatory functions or actual operations,” he said.

Indonesia is struggling to increase oil output as aging fields pump less amid a lack of foreign investment. The country withdrew from the Organization of Petroleum Exporting Countries in 2008.

Indonesia may pump an average 870,000 barrels a day of crude and condensate this year, down from 1.4 million barrels in 2000, according to data from BPMigas. The country is planning to raise oil production to 1 million barrels a day in 2014, data from the government show.

“We inherited fields that have been drained for 20 years,” R. Priyono, the head of BPMigas, said at a press conference yesterday. “Is it possible to expect us to exceed past production with the same fields? I don’t think it’s possible.”

Contracts Intact

AWE Ltd., an Australian company that holds a production sharing contract for the Ande Ande Lumut field offshore Sumatra, said that existing contracts will remain intact, according to a statement released today to the Australian Stock Exchange.

“We anticipate that the Indonesian Government will take immediate steps to ensure the orderly transfer of regulatory responsibility,” Bruce Clement, AWE’s managing director, said in the statement. “While the change in administration may result in some near term delays in approval for Ande Ande Lumut development, we don’t anticipate any significant issues in the long-term delivery of the project.”

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