Indonesia Omnibus Bill – Potential Changes To The Oil And Gas Law.

30 October 2020

 

(28 October 2020) The Indonesian House of Representatives (DPR) recently passed the Omnibus Bill on Job Creation (the “Omnibus Bill”). The stated aim of the Omnibus Bill is to bolster investment and create jobs by streamlining regulations and simplifying the licensing process to improve the ease of doing business in Indonesia.

 

The Omnibus Bill amends various provisions in laws across numerous sectors, including Law No. 22 of 2001 on Oil and Gas (the “Oil and Gas Law”). There are several versions of the Omnibus Bill circulating publicly as of the date of this article, consisting of 812, 905, 1035 and 1187 pages.

 

We highlight some of the noteworthy changes to upstream and downstream oil and gas business activities based on the 1187-page Omnibus Bill. In this version, nine provisions of the Oil and Gas Law are revised. We understand that a separate and more detailed amendment to the Oil and Gas Law is being prepared by the DPR.

 

Upstream Oil and Gas Business

 

Introduction of Business License

 

Under the Omnibus Bill, companies involved in upstream oil and gas business activities are required to obtain a “Business License” from the Central Government (the President, assisted by the Vice President and the Minister of Energy and Mineral Resources (“MEMR”)). A Business License is defined very generally in the Omnibus Bill as being legally granted to a business entity to commence and carry out its business and/or activities.

 

It is unclear what type of Business License will be applicable to upstream oil and gas operations as there is no further information in the Omnibus Bill. Nevertheless, the Omnibus Bill has not revoked the requirement under Article 6 of the Oil and Gas Law that upstream oil and gas business activities be carried out and controlled through a Production Sharing Contract (“PSC”).

 

There are questions around the criteria and requirements for a PSC contractor to obtain a Business License. Another question is how this requirement will affect existing PSCs. The Omnibus Bill contains a general transition provision stipulating that business licenses and sectoral licenses issued prior to the introduction of the Omnibus Bill will remain in force until the expiration of the license, but may be adjusted to conform with the provisions of the Omnibus Bill. It is unclear whether under this provision PSC contractors with existing PSCs would not be subject to the requirement in the Omnibus Bill to obtain a Business License.

Sanctions

 

The Omnibus Bill amends the provision in the Oil and Gas Law on sanctions. It now provides that any person conducting exploration and/or exploitation without a “Business License or PSC” shall be subject to imprisonment for a maximum of 6 years and a maximum fine of Rp.60 billion.

 

Downstream Oil and Gas Business

 

Single Business License

 

The Omnibus Bill removes the multiple business licensing requirement for downstream oil and gas business activities (processing, transportation, storage and/or retail) under the Oil and Gas Law. Rather, it designates a single integrated Business License that is applicable for all of the foregoing business activities. This Business License will be processed through an online system managed by the Central Government.

 

Currently, companies must manually apply for downstream business licenses with the Indonesian Capital Investment Coordinating Board (“BKPM”) c.q. the Directorate General of Oil and Gas in accordance with MEMR Regulation No. 40 of 2017 on the Delegation of Authority in Granting Licenses in the Oil and Gas Business Sector to the BKPM. With the enactment of the Omnibus Bill, Business Licenses for downstream activities will be applied for and issued electronically through an online system managed by the Central Government.

 

Sanctions

 

Under the Omnibus Bill, a company that conducts any downstream business activities without a Business License shall be subject to administrative sanctions in the form of termination of business and/or activities, a fine and/or “coercion by the Central Government”. There is no further elaboration on what is meant by coercion. These sanctions will be further regulated in a Government Regulation that is to be issued.

 

A party that conducts downstream business activities without a Business License that result in damage to health, safety and/or the environment shall be subject to maximum imprisonment of five years or a maximum fine of Rp.50 billion.

 

Previously, under the Oil and Gas Law, a party that conducted downstream business activities without a business license was subject to imprisonment and a fine, with the maximum amounts differing according to the type of activity, i.e. processing, transportation, storage or retail. These sanctions were not subject to any prerequisites, e.g., activities that result in damage to health, safety and/or the environment.

 

Administrative sanctions for the violation of any requirement in a Business License and/or in the Oil and Gas Law as amended by the Omnibus Bill are not made explicit in the Omnibus Bill, which simply provides for “administrative sanctions”. The criteria, type, fine amounts and the procedures for administrative sanctions are to be regulated by a Government Regulation. Previously, under the Oil and Gas Law, the administrative sanctions were stipulated as written warning, suspension of activities, freezing of activities, or revocation of business license.

 

The Omnibus Bill also imposes sanctions for any person abusing the transportation and/or trading of subsidized gas fuel and/or liquefied petroleum gas in the form of imprisonment for a maximum of six years and a maximum fine of Rp.60 billion. Previously, the Oil and Gas Law only imposed the aforesaid sanctions for the abuse of the transportation and/or trading of subsidized fuel.