Tuesday, 26 March 2013


Truly shocking. No dark clouds, no thunder, but suddenly storm busted out. Such was the picture of the public today as the heard the sudden verdict of the Constitutional Court (MK) when they suddenly dissolved the Executive Board of Oil & Gas (BP Migas last week (13/11).

MK had conducted a session to judge application for review of Oil and Gas Law. In that verdict MK stated that the very existence of BP MIGAS was against the Constitution. Essentially MK fulfilled part of applicants request. Article 1 paragraph 23, Article 4 paragraph (3). Article 41 paragraph (2), Article 44, Article 61 and Article 63 Law no 22 year 2001 on oil and natural gas was against the Constitution of the Republic of Indonesia year 1945 and had no binding legal force.

By that stipulation, MK declared dismissal of BP Migas. This meant that all function and role of BP as written in the collaboration Contract (KKS) would be taken over by the Government, in this case the related Minister, so there would be a be law that regulated all operations.

MK rated that the existence of BP Migas had reduced the State’s authority to manage natural resources for the sake of people’s prosperity. The rela­tionship between BP Migas as state’s representative and business institutions in the management of oil gas as model relationship had degraded the state’s authority over oil & gas resources.

As known, the Oil-gas Law was protested and brought to the Constitutional Court by Chairman of PP Muhammadiah Din Syamsuddin, ex PBNU Chairman Hasyirn Muzadi, Chairman of MUI Amidan, ex Minister of Labor and  Transrnirgration Fahmi idris and Muslim Politician Ali Mochtar Ngabalin. In addition to that 12 Muslim organizations also joined the protest.

They protested Law no. 22/2001 on oil-gas. They fated that Law no. 22 served foreign interest and discarded the nation’s souverignity. Chairman of PP Muhammadiah Din Syamsuddin as the one who proposed gladly welcomed the verdict of the Constitutional Court. However, he underscored that the request was purely for people’s prosperity. He under scored that the recommendation was not a matter of liquidating any certain institution but more of the fact that this Law of Oil Gas was disadvantageous to the people and supposedly Indonesia was more prosperous than the condition today.

Previously it was reported that some circles consisting of political figures and some students proposed judicial review to be exercised on the Oil-Gas Law. The requestors rated that some articles of the Oil Gas Law had robbed the people’s constitutional right as Indonesian citizens whereby to benefit the county’s natural resources.

About MK’s verdict, the Management of BP Migas through their head Raden Proyono could but surrender and accept destiny; BP Migas did not object dismissal of the body as manager of the oil and gas sector. Head of BP Migas was totally forlorn by the verdict.

Shocked as he was, Priyono could not even explain in detail what he planned to do after the o­ccurrence. The only thing visible was that Priyono consolidated with the Ministry of Energy and Mineral Resources.

The head of RP Migas drew an analogy be­tween the management of upstream oil-gas industry with a football competition, in which BP Migas acted as referee and the Government acting as PSSI or FIFA, while the players were Pertamina and foreign contractors. Now it was just like a game without referee, but then who would be acting as FIFA or should the Government act as referee?

Initially in the past BP Migas was set up based on the understanding that there should be division of labor. It should be borne in mind that BP Migas was a product of reformation, so if things were to be brought back to the past this was sheer backstop.

About the contracts made with foreign contractors which had been signed by BP Migas, it must be clarified to assure certainty in business.

One thing was sure BP Migas denied they were being accused of ultra-liberal or pro foreign oil companies. BP Migas felt they were simply executing what was being guideline and being restricted within the corridors set by the Government. If the accusations were in terms of pric­ing and allocation of oil gas, BP Migas was not in the position to decide for both.

The point was that pricing and allocation of gas were stipulated by the Government. It was even discussed with the Government. It was even discussed with the Parliament in terms of allocation for lifting and cost recovery. BP Migas was also controlled by the Government, Board of Financial Examination (BPk) and BPKB. So it seemed reasonable that the BP Migas Circles was puzzled why they were ar­oused of being liberal.

ln addition to that BP Migas also wondered why they were accused of being inefficient in the performance lately. The point was that for the past three years BP Migas had been entitled Natural without Exception by the Board of Financial Examination. BP Migas had been working efficiently and played by the rules. To compare it with similar organizations of the past era, BP Migas was only entitled to 1% fee which was never spent out, with retention of only 1%.

The impact of BP Migas dismissal would be felt in the upstream oil-gas industry in Indonesia, be­cause BP Migas had always been constantly interacting with foreign oil contracture in Indonesia. The impact on the industry would be significant because the body had been in contact with foreign direct in­vestment.

The dismissal of BP Migas would not generate direct impact, but the impact on the legal side would certainly be there, for example the follow up of con­tracts between BP Migas and foreign oil companies. That was the sensitive part of it because trough these contracts it would be known whether there was any protection of national capacity of oil.

It was noteworthy that quite many circles criticized the existence of BP Migas. Some re­marked that the existence of BP Miges had robbed the state’s souvereignity. They were of opinin that BP Migas was the Government’s asset. On the other hand BP Migas represented the Government in signing with foreign companies on business‑to-Government platform.  Meaning, the position of the Government would level up with foreign contrac­tors. In the event of legal dispute it might endanger the nation.

It was different from Law no. 8/1971 which regulated Pertamina to signed contracts with for­eign companies on business-to-business (B to B) basis. According to the Law, Pertamina’s assets were separated from the Government’ assets. Henc the Government was above the contract so state’s souvereignity was safeguarded.

Now that the Constitutional Court had dis­solved BPO Migas, the Government was advised to transfer authority to Pertamina just like the way Malaysia was doing with Petronas. So in the future the right substitute of BP Migas was Pertamina. This BUMN was given the role in managing the upstream sector.

The consequences was that Pertamina must reform as well in the sense that there must enhance professionalism and be transparent. All actions must be transparent and accountable. If Pertamina were entrusted to manage the oil-gas upstream sector, they were believed to be beneficial to the people. It was better than forming a new body which were not even sure to manage oil gas for the benefit of the people. Pertamina should also serve as the backbone and lifeblood of development as in other countries.

What, then, was the Government's response to MK's verdict? It was reported that President Susilo Bambang Yudhoyono had been reported about MK’s decision which had to dismiss BP Migas.

President SBY was still waiting for compre­hensive report from the Minister of Energy and Min­eral Resources, Head of BP Migas and Coordinating Minister of Economy. President SBY would discuss dismissal of BP Migas after receiving a copy of MK's decree. It was certain that the Government would re­spond to MK's decree since the status was final.

Through the Minister of Energy and Miner­al Resources Jerro Wacik, MK’s decree must be ex­ecuted. However the consequences must still be reviewed before decree of this high legal institution was executed. The Government ought to consider the impact of MK’s Decree on the investment climate in the oil-gas sector which had drawn many foreign investors to Indonesia.

Therefore the Government’s stance was to prioritize on the state’s interest much more than ex­pected and to maintain it well. MK’s decree would be managed well and wise by the Government so as not to disrupt the investment atmosphere which was now favorable. The Government would make prepa­rations for a transition period of execution of MK’s decree. A preparatory of transition period would really be necessary.

As with BP Migas’ future destiny, it was important for the Government to look forward to the best solution. In this case the Government must not be speculative and come up with hurried decision in regard to BP Migas’ continuity. All possibilities must be analyzed, whichever was best for the state’s interest. It became imperative that the Government responded to MK's decree in a statesman’s way.

One thing noteworthy was that state’s rev­enue from oil gas contracts which were underway would predictably cause loss of USD 70 billion. Just like the development project of LNG Lapangan Tang­guh by British Petroleum worth USD 12 billion in West Papua.

Not just loss from contracts underway, the Government would also lost Plant of Development (POD) contract in the near future. An example was the second POD contract from the Tangguh project worth USD 12 unless supervised the cost might swell Therefore the Government must find solution to keep the favorable investment climate well main­tained.

As known with MK's decision automatically all contracts which were just started by Bp Migas or underway stopped. And yet today there were around 20 contracts undertaken by Bp Migas. So all con­tracts were under threat to be stopped midway. By dismissing Bp Migas, Mk referred to the Government as undertaker of authority in running production in the downstream sector. However, contracts must not be done or renewed. The toughest part of it was that the Government could not do any business contract, so it was the industry that must be saved.

One of the possible measures to be taken by the Government was to prepare draft of Presidential Regulation to reform rules of BP Migas which was rat­ed as not in accordance with the State’s Law. Such was necessary to enable BP Migas to operate once more. The Coordinating Minister of Economy Hatta Rajasa disclosed that MK’s decision was final and binding. Therefore there was not much that BPO Migas could do about it.

The Government must immediately execute the decision and immediately draft out a Presidential Regulation to transfer the function of BP Migas to the Ministry of Enegy and Mineral Resources. The Regulation (Perpres) was made to prevent any loophole for any wrongdoing the way it happened during the BP Migas era. Such could trigger confusion among oil companies; in this case the Ministry of Energy of Energy Mineral Resources was expected to act promptly.

Business News - November 21, 2012

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