White knuckle time for oil firms as court verdict looms

White knuckle time for oil firms as court verdict looms

Dadan Wijaksana, Jakarta Post, Jakarta

The Constitutional Court will soon rule on the validity of the
current oil and gas law, but industry executives are gravely
concerned that an annulment could mean a new wave of uncertainty
and put billions of dollars worth of contracts at risk.

Industry players and the Oil and Gas Upstream Regulatory Body
(BP Migas) said over the weekend that an annulment of Law No.
22/2001 would shatter confidence in the government for existing
investors and push potential ones further away.

"If the Court does annul the law, it'll put us back into a
situation of uncertainty, which will stymie investment," Wahyudin
Yudiana, president of Caltex Pacific Indonesia, told reporters on
Saturday.

President of Medco E&P Indonesia Daryono Doyoatmodjo concurred
and added that the Court should invite everyone who would be
directly affected, so they could hear as much information about
the issue as possible, before delivering a verdict.

President of Star Energy, Supramu Santoso said: "An annulment
would be a setback."

The court is scheduled on Tuesday to deliver the verdict on
whether or not the Oil and Gas Law violates the spirit of the
1945 Constitution, as alleged by a number of non-governmental
organizations (NGOs) and a labor union representing the workers
of state oil and gas firm Pertamina.

Tuesday's decision will see the second crucial ruling issued
by the newly established Constitutional Court within a week,
having annulled the Electricity Law No. 20/2002 last Wednesday.
That law would have liberalized and deregulated the power sector
and gradually reduced the authority of state electricity firm PT
PLN, which has long held a legal monopoly in the sector.

As in the Electricity Law, the Oil and Gas Law is also aimed
at liberalizing the industry and opening up competition, thus
ending the monopoly of oil and gas firm Pertamina.

As result of that decision, the court reinstated Electricity
Law No. 15/1985. The government has said it was drafting a new
law on electricity, which it hoped could be finalized next week
to submit to the House of Representatives.

Against this backdrop, industry players in the oil and gas
sector are anxiously awaiting the verdict.

Harsher words came from BP Migas -- a regulatory body in
charge in the country's oil and gas sector whose establishment
more than two years ago was based on the Oil and Gas Law No.
22/2001.

BP Migas deputy head Kardaya Warnika said that not only would
an annulment damage Indonesia's credibility in the eyes of
investors, it would likely also mean that all the contracts
signed after the endorsement of the Law would not be effective
any longer.

"Also, there are a number of domestic firms in the sector that
have emerged because of the Law, such as PGN. What should we do
with them if the Law were to be annulled?," Kardaya asked,
referring to the state gas distributor Perusahaan Gas Negara,
which has been aggressive in recent years in the development of
its business, which has resulted in billions of dollars worth of
natural gas contracts with various parties.

"These contracts would have to be terminated, because these
deals will be legally flawed, if the Law is annulled," he said.

The very existence of BP Migas would be in question should the
judges annul the law.

For natural gas alone, BP Migas has signed, over the past two
years, a total of 37 sales contracts worth $57.7 billion, coupled
with the signing of around $12.4 billion worth of contracts to
develop and expand gas fields.