JAKARTA: Private companies will no longer be allowed to be involved in acquiring participating interest in oil and gas blocks allocated for local governments under a new regulation, which will be soon issued by the Energy and Mineral Resources Ministry.
Under the new regulation, an enterprise owned by a local administration or BUMD, which will represent the local governments in acquiring interest in the oil and gas blocks, should have enough funds to purchase interest.
If a BUMD does not have sufficient funds, it can co-operate with state-owned enterprises or the central government investment centre (PIP). The BUMD, however, is not allowed to team up with a private company in the purchase.
The regulation also states that if no BUMD shows interest in the offering to hold a stake in oil and gas blocks, contractors of the blocks will be obliged to offer participating interest to a state-owned firm.
Private firms will not be allowed to bid for interest offered by the contractors of the oil and gas contractors.
According to a government regulation issued in 2004, contractors are allowed to offer the interest to private firms if a BUMD shows no interest. A private company is also allowed to team up with the local government in the purchase.
According to the existing regulation, contractors are required to offer at least 10 per cent participating interest in their oil and gas blocks to the local administration to ensure that their operations also provide financial benefits to the local people.
“With the new regulation, we want to ensure that the oil and gas blocks will benefit the local people too. We don’t want the benefits to be enjoyed by free riders or rent-seekers,” Energy and Mineral Resources Minister Sudirman Said told reporters in a press briefing on Wednesday.
At present, due to a lack of funding, local governments co-operate with private companies to acquire participating interest in oil and gas blocks.
Also, under the planned new regulation for participating interest, BUMD or local administrations are not allowed to pledge their stake in the oil and gas blocks for other purposes, according to Sudirman.
The process and mechanism of the offering and takeover of 10 per cent participating interest would be under close monitoring, the Energy and Mineral Resources Ministry’s acting chief for oil and gas, IGN Wiratmaja, said.
“The procedures in the transfer of 10 per cent participating interest requires approval from the ministry and is based on a recommendation from SKKMigas [the Upstream Oil and Gas Regulatory Special Task Force],” Wiratmaja said. One of ongoing issues is participating interest for local administration in the valuable Mahakam block, for which the ministry has given principal approval that the block will be operated by state-owned oil and gas firm Pertamina following the expiration of a contract in 2017 held by Total E&P Indonesie.
