The Energy Regulation and Markets Review - Stikeman Elliott

Indonesia
of Electricity. Pending the issuance of implementing regulations, IUPTL applicants are
expected to follow the requirements under the 1985 Electricity Law, provided they do
not contradict the 2009 Electricity Law or any of its implementing regulations.
Oil and gas
New acreage for oil and gas are generally tendered and concessions are granted through
joint cooperation contracts with BPMigas (on behalf of the government). Field plans of
developments (which include proposed offtakers) are approved by BPMigas. In crude
oil and natural gas, the oil contractors are responsible for meeting the demand of crude
or natural gas for domestic consumption. Government Regulation No. 35 of 2004
(implementing the 2002 Oil and Gas Law) sets a maximum of 25 per cent of the oil and
gas contractor share of production of oil or natural gas for domestic needs.
Domestic gas sales price by contractors are negotiated among BPMigas, buyers
and individual contractors on a field-by-field basis, based on the economics of a particular
gas field development. Prior to the 2002 Oil and Gas Law, gas was sold to PT Pertamina
at a fixed price under a long-term gas supply agreement, who then sold the gas to the
end-users (mostly to PT PLN and the state gas company, PGN). In general, producers
can sell and negotiate directly with offtakers, however due to the government’s stake
involvement, the preference of the government is to sell to domestic users.
Non-integrated liquefied natural gas (‘LNG’) projects require negotiation of the
gas price between the producer and the LNG plant owner, to be then sold to end-users
after processing.
For the oil and gas downstream activities of processing, transportation, storage
and trading, separate licences are required if it is not integrated as one continuous
activity of the upstream oil and gas producing project. Unlike the ringfencing policy in
the upstream business, the downstream business allows one entity or company to hold
multiple licences.
All licence holders in downstream oil and gas activities must submit periodic
reports to the MEMR and or BPH Migas. The MEMR and BPH Migas regulate, control
and supervise the processing, storage, distribution and transportation of fuel oil and – to
some extent – the retail price for certain types of fuel oil.
Processing of gas is classified as a downstream business activity if intended as
a profit-making business and not as part of an upstream development. Approvals for
LNG and mini-LNG refineries have been granted to very few projects, partly due to the
government’s concerns about domestic gas supply demand.
Transportation of gas by pipelines via a transmission segment or a distribution
network area is permitted only with the approval of BPH Migas, with licences granted
for specific pipelines or commercial regions. A company with a transportation business
licence is required to prioritise use of transportation facilities owned by cooperatives,
small enterprises and national private enterprises when using land transportation; provide
an opportunity to other parties to share utilisation of its pipelines and other facilities
used for the transportation of gas; and comply with the master plan for a national gas
transmission and distribution network.
In line with the National Energy Policy, BPH Migas has the authority to
regulate, designate and supervise tariffs. An increase of capacity of facilities and means of
transportation is allowed after obtaining special permission.
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