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.