Oil, gas law not against Constitution, court rules

The Jakarta Post, Jakarta

The Constitutional Court on Tuesday upheld a 2001 oil and gas law that was designed to liberalize the sector and to gradually reduce the role of state firm Pertamina, saying the law did not violate the 1945 Constitution and should therefore remain in place.

However, minor revisions to the legislation -- notably some wordings in articles 12, 22, and 28 -- would need attention to avoid misinterpretations, judge Jimly Asshiddiqie said.

"Based on our investigation, the petition by the plaintiffs is rejected," he said when rendering the verdict.

The decision was the second important ruling issued by the newly established Constitutional Court within the past week, having last week annulled the Electricity Law No. 20/2002.

The electricity law was designed to push ahead the liberalization of the sector, accelerating the reduction of the monopolistic authority of state power firm PT PLN.

That decision raised concerns among industry players and government officials, who warned that revoking the law would only create uncertainty and hurt efforts to attract investment into the troubled sector, where a steady drop in output has led to a rise in fuel subsidy spending.

Under the Oil and Gas Law No. 22/2001, Pertamina's control over upstream and downstream sectors are transferred to two regulatory bodies, while new players would be allowed to compete in the sector.

Meanwhile, the Court said that the three problematic articles in the law center on the rights to explore and exploit oil and gas resources, the minimum quota for oil and gas that producers have to set aside for domestic supply, and the mechanism determining pricing of oil.

Judge Mukthie Fadjar told a press briefing afterwards that the wording "rendering the authority" in article 12 could be interpreted as the government relinquishing control over the country's petroleum resources.

"Perhaps, 'delegating the rights' would be better," he said, adding the revision should reflect that the government was actually allowing private firms to explore for oil and gas with the assets remaining under state control.

The article 22 stipulates that oil and gas producers are obliged to dedicate up to 25 percent of their production capacity for domestic supply.

Mukthie said the article should also have mentioned the minimum quota in addition to the maximum quota of 25 percent, so as to help secure oil and gas supplies for the domestic market.

The article on pricing, by which prices for fuels would be determined solely by market mechanisms, was deemed as being unfair to the poor. The government should instead make sure that it controls the prices of commodities that are of high importance to the people, added Mukthie.

Elsewhere, the verdict was immediately met with fierce protests from hundreds of members of non-governmental organizations (NGOs) and a labor union representing Pertamina's workers.

Seen among the posters they held aloft was one reading "Congratulations, the government has allowed foreigners to rob our resources at the expense of Indonesian people."

The organizations had asked the court to nullify the oil and gas law that they claim would cause job losses at Pertamina and higher fuel prices.