Update On Indonesia’s Omnibus Law And Implementing Regulations – Oil And Gas Sector.
Legal News & Analysis - Asia Pacific - Indonesia - Energy & Project Finance
22 April 2021
The Indonesian Government has enacted implementing regulations to Law No. 11 of 2020 on Jobs Creation (the “Omnibus Law”). The implementing regulation particularly relevant to the oil and gas sector is Government Regulation No. 5 of 2021 on the Implementation of Risk-Based Business Licensing (“GR 5/2021”), which was enacted on February 2, 2021. The regulation includes Appendices I and II specifically relating to the energy and mineral resources sector (“EMR Appendices”).
Generally, GR 5/2021 provides clarity on certain provisions relating to the requirements for oil and gas business licensing that were not made clear in the Omnibus Law. (You can see our article on the Omnibus Law and the Oil and Gas Law here.
Under GR 5/2021, Business Licenses in the oil and gas sector consist of licenses relating to (i) general survey, (ii) upstream oil and gas business, and (iii) downstream oil and gas business. GR 5/2021 also mentions Business Licenses for supporting businesses in the oil and gas sector. Below are some of the notable provisions in GR 5/2021.
Implementation of General Survey
A general survey is principally implemented by the Ministry of Energy and Mineral Resources (“MEMR”) but may also be carried out by a business entity. Under GR 5/2021, the Central Government may impose administrative sanction(s) on a holder of a Business License for general survey work if it violates one of the obligations in its Business License and/or does not fulfill the obligation(s) and/or requirement(s) set forth in the laws and regulations.
GR 5/2021 does not offer details on the form of administrative sanction(s). However, MEMR Regulation No. 29 of 2017, as amended by MEMR Regulation No. 52 of 2018 regarding Licensing for Oil and Natural Gas Business Activities, lists the administrative sanction(s) applicable for violations of certain obligations relating to general survey work:
a. written warning;
b. temporary suspension of activity; or
c. revocation of general survey license.
Upstream Oil and Gas Business
Clarity on the Form of Business License
The Omnibus Law requires business actors in the sector to obtain at least a Business Identification Number (Nomor Induk Berusaha or “NIB”) and a Business License from the Central Government before conducting business activities. A Business License is defined very generally in the Omnibus Law as being legally granted to a business entity to commence and carry out its business and/or activities. In this regard, under the EMR Appendices of GR 5/2021, upstream oil and gas business activities are considered a high-risk business sector.
GR 5/2021 clarifies that the Business License for upstream oil and gas activities is in the form of a Production Sharing Contract (PSC) and NIB, and that the implementation of the Business License will not invalidate any provisions of the Production Sharing Contract.
GR 5/2021 contains a general transition provision stipulating that provisions on the implementation of risk-based business licensing under the regulation do not apply to business actors whose Business License was approved and became effective prior to GR 5/2021 coming into effect. This provision does not seem to waive the requirement for existing PSC contractors to obtain an NIB if they have not done so before GR 5/2021 came into effect.
The Omnibus Law provides that any person conducting exploration and/or exploitation activities without a “Business License or PSC” shall be subject to imprisonment for a maximum of six years and a maximum fine of Rp.60 billion.
Downstream Oil and Gas Business
Clarity on Sanctions
Under the Omnibus Law, a company conducting 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 (paksaan) by the Central Government”. There was no elaboration on what was meant by coercion (paksaan) in the Omnibus Law.
GR 5/2021 clarifies that coercion (paksaan) may be in the following forms:
a. dismantling of infrastructure and facilities;
b. confiscation of goods or tools that have the potential to cause violations;
c. corporate coercion; and/or
d. other actions aimed at stopping violations and actions to restore environmental functions.
GR 5/2021 also provides that the foregoing sanctions shall be imposed until a Business License is issued.
Additionally, under the Omnibus Law and GR 5/2021, the Central Government may impose administrative sanction(s) on the holder of a Business License for downstream oil and gas business activities if it violates one of the obligations in its Business License and/or does not fulfill the obligation(s) and/or requirement(s) set forth in the laws and regulations. Such administrative sanctions were not made explicit in the Omnibus Law, and GR 5/2021 clarifies that the administrative sanctions shall be in the following forms:
a. written warning;
b. temporary suspension of activities; and
c. revocation of Business License.
Supporting Business in Oil and Gas
Business Licenses to Support the Oil and Gas Sector
GR 5/2021 provides a list of 33 Business Licenses to support the oil and gas sector. The EMR Appendices further regulate each of these Business Licenses, which includes the requirements and time period to obtain the license, validity period of the license, authorized governmental entity to issue the license, and obligations for the business entity in implementing the relevant business activities based on the license.
Pursuant to GR 5/2021, any person carrying out supporting business activities in the oil and gas sector without the relevant Business License shall be subject to administrative sanctions in the form of:
a. termination of business and/or activity;
b. administrative fine; and/or
c. coercion from the Central Government.
The Central Government may impose administrative sanction(s) on the holder of a Business License for supporting business activities in the oil and gas sector if it violates one of the obligations in its Business License and/or does not fulfill the obligation(s) and/or requirement(s) set forth in the laws and regulations. Said administrative sanctions are as follows:
a. written warning;
b. temporary suspension of activities;
c. fine; and/or
d. revocation of Business License.
GR 5/2021 provides clarity on certain provisions relating to the oil and gas sector under the Omnibus Law, particularly by specifying the required Business License in the upstream oil and gas sector. The additional requirement for an NIB may not be in line with the overall purpose of the Omnibus Law, which is to simplify licensing procedures and remove excessive regulatory requirements. However, this may not be a substantial issue and should be a mere formality that some PSC contractors have already complied with in practice.
It will be necessary to monitor how GR 5/2021 is implemented in practice. (22 April 2021)