Answer ... In November 2020, Indonesia’s closely watched omnibus jobs creation bill finally became law as the Job Creation Law. It amended more than 70 laws across different sectors, including the Oil and Gas Law, where the changes mainly concerned the provisions relating to licensing and sanctions.
Under the Job Creation Law, companies involved in upstream oil and gas business activities must obtain a business licence from the central government. In early 2021, the government enacted Government Regulation 5/2021, which is an implementing regulation for the Job Creation Law. Government Regulation 5/2021 provides clarity on certain provisions relating to the oil and gas sector under the Job Creation Law – in particular, by specifying the required business licence in the upstream oil and gas sector (ie, the production sharing contract (PSC) and business identification number).
In the downstream sector, the Job Creation Law removes the multiple business licensing requirement for downstream oil and gas business activities (processing, transportation, storage and/or trading) under the Oil and Gas Law. Rather, it designates a single integrated business licence that is applicable for all of the foregoing business activities. The Job Creation Law also amends/adds to the sanctions in the Oil and Gas Law – that is, sanctions relating to:
- the conduct of downstream business activities without a business licence;
- the violation of a business licence and/or the Oil and Gas Law; and
- the abuse of transportation and/or trading of gas fuel and/or liquefied petroleum gas.
Separately, a new draft oil and gas law, which is widely expected to reform the oil and gas regulatory framework, is being prepared by the House of Representatives. Expected changes include:
- the establishment of an oil and gas managing agency in the form of a state-owned enterprise to replace the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas);
- increased privileges for Pertamina in acquiring working areas; and
- updated mechanisms for PSCs and their extension in the upstream sector.
In July 2020, the Ministry of Energy and Mineral Resources (MEMR) issued MEMR Regulation 12/2020 to amend MEMR Regulation 8/2017, which grants some flexibility to adopt either a cost recovery PSC or a gross split PSC. The regulation provides that existing PSCs will remain valid until their expiry and may be converted into gross split PSCs. For expiring PSCs, the MEMR may determine whether to adopt either a gross split PSC, a cost recovery PSC or another form of cooperation contract, whether or not the expiring PSC is extended. For new PSCs, the MEMR will determine what form of PSC will be adopted based on the level of risk, investment climate and maximum benefit for the state.
Between 2020 and 2021, the MEMR issued MEMR Regulation 8/2020 and MEMR Decree 134/2021, which amended gas prices for specific industries (eg, the fertiliser, petrochemical, oleochemical, steel, ceramics, glass and rubber glove industries). MEMR Regulation 10/2020 regarding the Amendment of MEMR Regulation 45/2017 regarding the Utilisation of Natural Gas for Power Plants and MEMR Decree 135.K/HK.02/MEM.M/2021 regarding the Amendment of MEMR Decree 118.K/MG.04/MEM.M/2021 regarding Natural Gas Prices in Power Plants amended gas prices for power plants. The adjustment of existing gas prices will not affect a PSC contractor’s entitlement, but rather will become a reduction of the government’s entitlement in accordance with the PSC for the working area in the current year. Such reduction cannot exceed the government’s entitlement for the current year.
In August 2021, the government issued Government Regulation 93/2021, under which income derived from the transfer of a participating interest will be subject to final income tax. The regulation also provides the criteria for exemptions from final income tax.