PLAN OF DEVELOPMENT: ASPECT ON THE GOVERNMENTAL POLICY

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1 PLAN OF DEVELOPMENT: ASPECT ON THE GOVERNMENTAL POLICY By: SARYONO HADIWIDJOYO Head Sub Directorate Exploration & Exploitation Development Directorate of Exploration & Exploitation Directorate General of Oil and Gas Presented on 3 rd Workshop on the Indonesian PPM Case Study Surabaya, 18 Juli 2005

2 CONDITION OF OIL & GAS SECTOR GLOBALIZATION : WTO, APEC,AFTA O I L DEVELOPING OF INDUSTRIES State revenues -Source of energy toward the domestic needs - Form of effort - Investment - Trick of competition INVESTIGATION TOWARD OIL AND GAS LAW - Strategic excavate object controlled by the state affect the livelihood of the people at large - National endurance? - State Enterprise only and integrated? - Independence, fund maintenance? A N D G A S L A W -The modern of oil and gas industries - Transparent - Efficient - Optimum state revenues - Aspirate toward regional - Competition INTERNAL CHANGE : - Regional autonomy - Law of Anti Monopoly - State Owned Companies

3 POLICY FRAMEWORK OIL AND GAS SECTOR Policy Constraint Strategy Objectives Policy Outcome Final Outcome Professional Competency Building Organization Structural Reform Legal Reform Good Governance Sound Environment Business Ventures Through : -BUMN -BUMD -Private > Local > International -Koperasi Expanding Oil and Gas Revenue Contribution In National Economy - Sustainable Economic Growth - Fair And Just Income Distribution Nation Welfare Professional Competency Building -Training and Workshop -Code of Conduct -Career Development -Renumeration -Reward and Punishment Organizational Reform -Restructuring Program -Reorganization -Transformation -Separation Of Player And Regulator Role -Modernization -Public Participation -Responsiveness Legal Reform -Legislation -Laws -Ministry Decrees -Business Ethics -State Policies -Competition -Level Playing Field -Equal Opportunity -Transparancy -Accountability -Free Trade/ Investment -Rule of Law -Public Oriented Economic Platform Based On Fair And Just Market Mechanism -Employing Science And Technology Progress That Suits Nation s Character -Inseparable Parts Of National Sustainable Development Program Which Is Based On National Capabilities Whilst Taking Into Account Globalization Challenges -Reflects Environmental Protection Policy -In Line With Regional Autonomous Regulations - Availability Of Oil And Gas As Energy And Feedstock Resources - Growth In Petroleum Business Activities - Growth In Number Of Players In Petroleum Business Activities - Growth in Petroleum Acreage (New) - Growth In Investment And Operational Expenditures - Expansion Of Petroleum Reserves, Production And Utilization - Growth In Job Opportunity - Technology Transfer - Increase of Value Added - Increase Of Government Revenues And Taxes

4 The 1945 Institution Art. 33 POLICY FRAMEWORK ON THE OIL AND GAS SECTOR HR DEVELOPMENT AND MANAGEMENT SETTING UP THE INSTITUTION SETTING UP THE REGULATION Law 22/2001 : UPSTREAM OIL AND GAS BUSINESS ACTIVITIES Principle (Art. 2) The implementation of Oil and Natural Gas business activities regulated hereunder shall be based on the principles of people s economy, integration, benefit, justice, balance, even distribution, people s prosperity and welfare, security, safety and legal certainty as well as environmental-oriented Assure that the effective execution and control of the business through the mechanism of business competition Assure that the effective execution and control of Exploration dan Exploitation business activities Increase the state revenue Purpose (Art. 3) Support and improve national capacity to be more competitive at the national, regional, and international level. Guarantee the efficiency and effectiveness of the avaibility of Oil and Natural Gas, either as energy resource or as a raw material for domestic needs Create job opportunities, increase the just and even distribution of the people s welfare and prosperity and maintain the preservation of the living environment. IMPLEMENTATION REGULATION (GOVERNMENT REGULATION) REGARDING UPSTREAM OIL AND GAS BUSINESS ACTIVITIES

5 OIL AND GAS NEW POLICY PREVIOUS NEW REGULATOR PLAYER PLAYER REGULATO R SUPERVISOR RECENT (LAW NO. 22/2001)

6 BACKGROUND To promote national welfare Strategic resources play an importance role in the national economy An important role in giving an actual added value to increased and sustainable national economic growth The previous oil and gas law is no longer suitable for development oil and gas business activities

7 SECTOR REFORM Enactment of a new oil and gas law Ending Pertamina s monopoly and the opening up of all aspects in the petroleum sector to create greater competition while preserving Pertamina as an important company. Greater pricing mechanism transparency Establishment of new institution for upstream and downstream petroleum regulation Introduction of efficiency improvements in hydrocarbon exploration and production

8 THE INTENTION OF THE IMPLEMENTATION a. To assure that the effective management of Exploration and Exploitation business activities is useful, productive, highly competitive and sustainable with respect to the State s Oil and Natural Gas which are strategic and non-renewable natural resources through open and transparent mechanism; b. To assure that the effective management of the business of Processing, Transportation, Storage and Trading is accountable through the mechanism of appropriate, fair and transparent business competition; c. To guarantee the efficiency and effectiveness of the availability of Oil and Natural Gas, either as energy resources or as raw material for domestic need. d. To improve national capability towards competitive environment at the national, regional, and international levels; e. To increase revenue thus giving maximum contribution to the national economy, and to develop and strengthen the position of Indonesian industry and trade; f. To create job opportunities, increase the just and even distribution of the people s welfare and prosperity and maintain the preservation of the natural environment.

9 THE PRINCIPLE OF OIL AND GAS LAW 1. Oil and natural gas within territory of Indonesia are a national asset, controlled by the Government. 2. Government as the mining right holder establish an Implementing Body which controls the operational management. 3. Upstream business activities shall be conducted through the cooperative contracts. 4. Downstream business activities shall be conducted through the mechanism of appropriate, fair, and transparent business competition.

10 MANAGEMENT OF OIL AND GAS ACTIVITIES DIT. GEN. OIL & GAS PERTAMINA PAST CONDITION (BEFORE UU 22/2001) DIT. GEN. OIL AND GAS FUNDAMENTAL DUTIES & FUNCTION According to Pres. Decree No. 165 of 2000 and others related Regulation Pertamina According to LAW No.8 of 1971 Upstream Function Downstream Function LAW 22/2001 CONCERNING OIL & GAS CURRENT CONDITION (AFTER UU 22/2001) DIT. GEN. OIL AND GAS FUNDAMENTAL DUTIES & FUNCTION According to Pres. Decree No. 165 of 2000 and others related Regulation PT. PERTAMINA (PERSERO Imp. Body Gov. Upstream Function Reg. Body Gov. Do.stream Function PRE CONTRACT DIT. GEN. OIL AND GAS CONTRACT DIT. GEN. OIL AND GAS/IMPLEMENTING BODY POST CONTRACT DIT. GEN. OIL AND GAS

11 IMPLEMENTATION REGULATION (GOVERNMENT REGULATION) REGARDING UPSTREAM OIL AND GAS BUSINESS ACTIVITIES CONTROL AND BUSINESS (Art. 4) The control by the state The government as the holder of the mining authority Business Implementing Body Implementation of Upstream Activities OPTIMIZATION OF ADDED DOMESTIC VALUE (Art ) Utilization of domestic goods, services, technology, and engineering and design capabilities Used of local manpower UPSTREAM BUSINESS ACTIVITIES (Art ) Terms & Conditions before Cooperation Contract Implementing contract OPTIMIZATION OF STATE REVENUE (Art. 3, 31, 39-42) Technical Principle Asset maintaince Standardization Term & Conditions PUBLICT INTEREST PROTECTION (Art ) Maintenance of occupational health & safety and conservation of the living environment Development of local communities Higher Oil and Gas Revenue Contribution in the National Economy Sustainable National Economic Growth Fair and Just Income Distribution Nation Welfare

12 GOVERNMENT REGULATION ON LAW NO. 22/ GOVERNMENT REGULATION NO. 42 YEAR 2002 ON IMPLEMENTING BODY UPSTREAM OIL AND GAS BUSINESS ACTIVITIES 2. GOVERNMENT REGULATION NO. 62 YEAR 2002 ON REGULATING BODY DOWNSTREAM OIL AND GAS BUSINESS ACTIVITIES 3. GOVERNMENT REGULATION NO. 35 YEAR 2004 ON UPSTREAM OIL AND GAS BUSINESS ACTIVITIES 4. GOVERNMENT REGULATION NO. 36 YEAR 2004 ON DOWNSTREAM OIL AND GAS BUSINESS ACTIVITIES 5. GOVERNMENT REGULATION NO. 31 OF 2003 ON CHANGE OF STATUS OF THE STATE OIL AND GAS MINING COMPANY (PERTAMINA) INTO A LIMITED LIABILITY COMPANY (PERSERO) 6. DRAFT ON GOVERNMENT REGULATION ON HEALTH, SAFETY, AND ENVIRONMENT MANAGEMENT IN UPSTREAM OIL AND GAS BUSINESS ACTIVITIES 7. DRAFT ON GOVERNMENT REGULATION ON TARIFF OF STATE REVENUE NON TAX

13 DEVELOPMENT AND SUPERVISION OF UPSTREAM OIL AND GAS ACTIVITIES ARTICLE 4 (1) OIL AND GAS STATE CONTROL ARTICLE 4 (2) GOVERNMENT MANAGEMENT DEVELOPMENT (DIT. GEN. OIL AND GAS) ARTICLE 39 (1) SUPERVISION GOVERNMENT AFFAIRS OF UPSTREAM OIL & GAS ACTIVITIES DETERMINATION OF POLICIES/ REGULATION ON UPSTREAM OIL & GAS ACTIVITIES COMPLIANCE WITH PREVAILING LAW AND REGULATION MINISTRY OF ENERGY & MINERAL RESOURCES/DIT GEN OIL & GAS AND OTHER RELATED MINISTRIES BASED ON THE COOPERATION CONTRACT IMPLEMENTING BODY FOR MINISTRY OF ENERGY & MINERAL RESOURCES/ DIT. GEN. OIL & GAS TASK AND FUNCTION DIT. GEN. OIL AND GAS UPSTREAM OIL & GAS ACTIVITIES GOV. REGULATION 42/2002 TASK AND FUNCTION IMPLEMENTING BODY

14 DEVELOPMENT AND SUPERVISION OF UPSTREAM OIL AND GAS ACTIVITIES PRE CONTRACT CONTRACT POST CONTRACT DIT. GEN. OIL AND GAS DEVELOPMENT AND SUPERVISION IMPLEMENTING BODY SUPERVISION

15 HIGHLIGHT OF UPSTREAM OIL AND GAS BUSINESS ACTIVITIES (LAW NO. 22/2001) 1. UPSTREAM BUSINESS ACTIVITIES (ART ) TERM & CONDITIONS BEFORE COOPERATION CONTRACT (KKS) TERM & CONDITIONS DURING EXECUTION KKS 2. OPTIMATION OF STATE REVENUE (ART. 3, 31, 39 42) ENGINEERING PRACTICES ASSET MANAGEMENT STANDARDIZATION TERM & CONDITION 3. MASTERY AND UTILIZATION (ART. 4) OIL MASTERY BY GOVERNMENT GOVERNMENT AS THE HOLDER OF MINING RIGHTS IMPLEMENTATION OF MASTERY CONDUCT UPSTREAM BUSINESS ACTIVITIES 4. PUBLIC INTEREST PROTECTION (ART ) HEALTH, SAFETY, AND ENVIRONMENT MANAGEMENT LOCAL COMMUNITY DEVELOPMENT

16 GUIDANCE OF UPSTREAM BUSINESS ACTIVITIES CONDUCT OF GOVERNMENT AFFAIRS IN THE UPSTREAM BUSINESS ACTIVITY SECTOR SETTING POLICY ON UPSTREAM BUSINESS ACTIVITIES GOV. REG. ART. 86 (2)

17 THE CONDUCT OF GOVERNMENT AFFAIRS INCLUDE : (GR 35 Art.87 (1)) A. PLANNING; B. LICENSING, APPROVALS, AND RECOMMENDATIONS; C. MANAGEMENT AND UTILIZATION OF OIL AND GAS DATA; D. EDUCATION AND TRAINING; E. TECHNOLOGICAL RESEARCH AND DEVELOPMENT; F. APPLICATION OF STANDARDIZATION; G. GRANTING OF ACCREDITATION; H. GRANTING OF CERTIFICATION; I. GUIDANCE OF SUPPORT INDUSTRIES/ BUSINESS ENTITIES; J. GUIDANCE OF SMALL/MEDIUM-SCALE ENTERPRISES; K. USE OF DOMESTICALLY PRODUCED GOODS AND SERVICES; L. MAINTENANCE OF OCCUPATIONAL HEALTH AND SAFETY; M. CONSERVATION OF THE NATURAL ENVIRONMENT; N. CREATION OF A CONDUCIVE INVESTMENT CLIMATE; O. MAINTENANCE OF SECURITY AND ORDER.

18 DETERMINATION OF POLICY REGARDING UPSTREAM BUSINESS SHALL INCLUDE REGULATION OF : (GR 35 Art. 87 (2)) 1. EXECUTION OF GENERAL SURVEYS; 2. MANAGEMENT AND UTILIZATION OF OIL AND GAS DATA; 3. PREPARATION, DETERMINATION, AND OFFERS AND RETURNS OF WORK AREAS; 4. FORMS AND TERMS AND CONDITIONS OF COOPERATION CONTRACTS; 5. EXTENSIONS OF COOPERATION CONTRACTS; 6. PLANS FOR FIRST-TIME DEVELOPMENTS OF FIELDS; 7. DEVELOPMENT OF FIELDS AND PRODUCTION OF OIL AND GAS RESERVES; 8. UTILIZATION OF NATURAL GAS; 9. APPLICATION OF GOOD ENGINEERING PRACTICES; 10. OBLIGATION TO SURRENDER A PART OF THE CONTRACTOR S SHARE OF OIL AND GAS TO FULFILL DOMESTIC NEEDS (DOMESTIC MARKET OBLIGATION, DMO); 11. MASTERY, DEVELOPMENT, AND APPLICATION OF OIL AND GAS TECHNOLOGY; 12. OBLIGATION TO PAY STATE REVENUES; 13. MANAGEMENT OF THE NATURAL ENVIRONMENT; 14. OCCUPATIONAL HEALTH AND SAFETY; 15. USE OF FOREIGN MANPOWER 16. DEVELOPMENT OF INDONESIAN MANPOWER; 17. DEVELOPMENT OF LOCAL COMMUNITIES; 18. STANDARDIZATION; 19. USE OF DOMESTIC GOODS, SERVICES, TECHNOLOGY, AND ENGINEERING AND DESIGN CAPABILITIES; 20. CONSERVATION OF OIL AND GAS RESOURCES AND RESERVES; 21. ENTERPRISES FOR COALBED METHANE; 22. OTHER ACTIVITIES IN OIL AND GAS BUSINESS ACTIVITY SECTOR, INSOFAR AS THEY INVOLVE THE PUBLIC INTEREST.

19 Plan of Development (POD)

20 DEFINITION Plan of Development for one field or more integrated is intended to develop/produce HC reserves optimally by considering technical, economic and HSE aspect.

21 Before implementing the law no. 22/2001, POD Approval for the first time within an Operational Area by President Director of Pertamina After implementation of law no. 22 year 2001 The plan to develop the field which will be produced for the first time within an Operational Area must obtain an approval of the Minister based on the consideration from the Implementing Body (BPMIGAS) and after consultation with the Regional Government of the relevant Province (Art 21). If it has obtained the approval for initial field development within any Operational Area does not conduct its activities in a period of a maximum of 5 (five) years after the expiration of the Exploration period, it shall be obligated to relinquish all of its Operational Area to the Minister (Art 17).

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23 POD Development purpose for one field or more integrated is intended to develop/produce HC reserve optimally by considering technical, economic and HSE aspect. POD is proposed to BPMIGAS based on actual condition and approval by Head of BPMIGAS POD Validity was 2 (two) years since it was approved. Scope of work changes or POD executing delay without confirmation will be expired

24 Plan of Development (GR 35 Art.95-96) 1 st POD will be approved by the Minister after consultation with Regional Government, while subsequent POD will only be approved by BPMIGAS. Failure to implement 1st POD within 5 years of its approval will result in obligation to relinquish such Working Area. This provision is not applicable for a gas field which at such time has not secure any sales arrangement. In such case the Minister may consider extension for such period.

25 STATE REVENUES Contractors are required to pay State revenues in the form of taxes and of Non-Tax State Revenues ( GR 35 Art. 52). Contractor may choose the provisions regarding tax payment obligations among the following options: to follow the provisions of the laws and regulations in the taxation sector that are in force at the time that the Cooperation Contract is signed; or to follow the provisions of the laws and regulations currently prevailing in the taxation sector (GR 35 Art. 53). The division of the production of Oil and Gas from Production Sharing Contracts between the Government and the Contractor shall be done at the point of deliver (GR 35 Art. 54). All production of Oil and Gas produced by a Contractor in a Service Contract shall be the property of the State and must be surrendered by the Contractor to the Government. (GR 35 Art. 57)

26 MANPOWER AFFAIRS In meeting their manpower needs, Contractors are required to place priority on the use of Indonesian manpower, with due attention to the use of local manpower. (G.R. 35 Art. 82) Contractors may use foreign manpower that cannot yet be fulfilled by Indonesian person. To develop the capabilities of Indonesian workers to enable them to meet work competency standards and the qualifications of their positions, Contractors are required to carry out guidance and education and training programs for Indonesian workers. (G.R.35 Art. 83)

27 SAFETY, HEALTH, ENVIRONMENTAL & COMDEV Contractors are required to ensure and abide by the provisions regarding occupational safety and health, management of the natural environment, and development of local communities (GR 35 Art 72). In participating in the development of local communities, Contractors shall allocate funds in the formulation of each year s annual work plan and budget. (GR 35 Art 74)