House okays oil, gas law

House okays oil, gas law

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The House of Representatives finally approved on Tuesday a
long-awaited new oil and gas law, which will end the decades-old
lucrative monopoly of state oil and gas firm Pertamina.

During the House plenary session, the small Love the Nation
Democratic faction (FPDKB) asked the House to delay until
December its approval for the new law so as to give more time to
legislators to thoroughly debate the bill.

The request was rejected.

The new law, which replaces the Oil and Gas Law No. 44/1960
and Law No. 8/1971 on Pertamina, is aimed at liberalizing the
country's oil and gas sector by abolishing Pertamina's regulatory
and contract-approval roles.

Under the new law, the government will set up executive and
regulatory bodies to take over Pertamina's previous roles.

The executive body will take over Pertamina's role in dealing
with foreign oil and gas contractors, while the regulatory body
will manage domestic fuel supplies and distribution.

The new law stipulates that the two bodies must be established
within one year after the enactment of the law, while Pertamina
must become a limited liability company within two years.

Once the executive body has been established, Pertamina will
no longer enjoy retention fees of about Rp 6 trillion (US$600
million) per year.

But after the company becomes a limited liability company it
will only have to pay normal corporate tax of around 35 percent,
compared to the tax of 60 percent that it must currently pay to
the treasury.

Pertamina will continue to be obliged to distribute fuel at
home for four years after the enactment of the law.

The new law also maintains the current production-sharing
contract scheme, but also leaves room for other types of
contractual schemes with investors as long as they are beneficial
for the country.

Under the new law, every contractor is allowed to choose
either to pay taxes in accordance with the tax regulations in
effect when their contracts were signed, or in accordance with
prevailing regulations.

Investors are also obliged to undertake community development
work, something which was not provided for under the previous
law.

The new law also obliges investors to supply gas to the
domestic market so as to guarantee supplies.

Meanwhile, 10 legislators rejected the law saying that it was
against the Constitution, arguing among other things that the
state should not be allowed to directly negotiate with oil and
gas contractors.

Previously, the Consultative Forum of Oil Producing Regencies
and some executives of foreign oil and gas companies also
protested the bill for failing to accommodate their interests.

"We have worked very hard to complete it ... we see that the
new law is much better than the existing law," legislator Emir
Muis of the PDI-P faction said in his address to the plenary
session.

"It is time to end the (Pertamina) monopoly era. We also want
Pertamina to compete with other firms so that it can become a
world class oil and gas company," Cornelis Tapatab of the Golkar
faction said.