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Indonesia: State Firm to Manage Upstream O&G Business

February 13, 2020

For Illustration Only: Floating Production Unit at Chevron's IDD project in Indonesia (File Photo: Chevron)
For Illustration Only: Floating Production Unit at Chevron's IDD project in Indonesia (File Photo: Chevron)

Indonesia plans to set up or designate a state firm to carry out upstream oil and gas activities, to try to curb red tape and regulations that are blamed for hindering investment in Southeast Asia's biggest economy. 

The government of President Joko Widodo is seeking to boost economic growth and create jobs in sectors such as energy, where investors often cite regulatory uncertainty, bureaucratic hurdles and strict labor rules as deterrents to development. 

The plan was included in a new omnibus bill submitted to parliament and made public late on Wednesday. It would require private companies in the sector to conduct business with a "special state firm" through a production sharing contract (PSC). 

It also drops a requirement for an upstream oil and gas regulator, a task now performed by regulator SKK Migas. The upstream sector of oil and gas consists of activities such as the exploration and drilling of new wells. 

The responsibilities of SKK Migas under existing PSCs with private companies will be switched to the new state company once it is formed, according to the bill. 

The draft bill also says the state firm will offer oil and gas fields determined by the government to contractors. The future function of SKK Migas is unclear. The government is now due to debate the draft bill with members of the parliament. 

President Widodo had asked the parliament to finish the discussion on the so-called omnibus law within 100 days, but in an interview with BBC Indonesia published on Thursday he said he hoped the bill could be passed within six months. 

The bill does not specify which state company might be appointed for the new function. 

State oil and gas company PT Pertamina had acted as both a regulator and partners to oil and gas companies before the government formed a separate regulatory agency in 2001. 

(Additional reporting by Gayatri Suroyo and Wilda Asmarini; Editing by Ed Davies and Christian Schmollinger)



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