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New
Oil and Gas Law
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A
new law governing the upstream and downstream oil and
gas industry in Indonesia (hereafter referred to as the
"November 2001 Law") has been signed on 22 November
2001 by the President of Indonesia (Megawati Sukarnoputri),
while The House of Representatives approved the law in
a plenary session held on 23 October 2001. The new law
is more of a framework document than a specific legislation.
More a specific regulations are to be implemented at a
later date. Therefore, at the time of writing no changes
have occurred to the fiscal terms.
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The
features of the November 2001 Law are:
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Pertamina will be removed as the country's oil and
gas administrator, state partner and negotiator, to
be replaced by a state of Implementing Body, to be called
as the BADAN PELAKSANA HULU, abbreviated as BALAK,
or BPH, the Upstream Implementing
Body.
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Within two years from the date of the implementation
of the new law, Pertamina shall be converted into
a "Persero" through government regulation.
In its new form, Pertamina will sign Cooperation Contracts
with the Implementing Body to allow it to explore
for and produce hydrocarbons.
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Previous legislation, namely Law No. 44, Law No. 8
and Law No. 15, (and amendments) become null and void
(except to the extent that they contain regulations
which are not contrary to the November 2001 Law and
have not been replaced by new regulations introduced
under that law).
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All existing contracts will be honoured until expiration
of the contract.
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Domestic Market Obligation (DMO) to be based solely
on 25% of the contractor's First Tranche Petroleum
plus Profit Oil (compared to the lesser of the "25%
rule" and the total domestic consumption of crude
oil in Indonesia divided by the total domestic production
of crude oil in Indonesia). DMO is also to apply to
gas as well as to oil (previously only oil was subject
to DMO).
- The
total contract period is 30 years under Cooperation
Contracts, including the exploration period. Companies
can apply for this to be extended by 20 years. Therefore,
the maximum contract length under the new law is 50
years, whereas previously the maximum contract period
is 30 years.
- Broad
based environmental terms are expressed within the
actual oil and gas legislation.
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Regulations under previous legislation will continue
to prevail until regulations under the November 2001
Law are implemented.
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