PLAN OF DEVELOPMENT:ASPECT ON THE GOVERNMENTAL POLICY

By:SARYONO HADIWIDJOYO

Head Sub Directorate Exploration & Exploitation DevelopmentDirectorate of Exploration & Exploitation

Directorate General of Oil and Gas

By:By:SARYONO HADIWIDJOYOSARYONO HADIWIDJOYO

Head Sub Directorate Head Sub Directorate Exploration & Exploitation DevelopmentExploration & Exploitation DevelopmentDirectorate of Exploration & Exploitation Directorate of Exploration & Exploitation

Directorate General of Oil and Gas Directorate General of Oil and Gas

Presented on 3rd Workshop on the Indonesian PPM Case Study Surabaya, 18 Juli 2005

Presented on 3Presented on 3rdrd Workshop on the Indonesian PPM Case Study Workshop on the Indonesian PPM Case Study Surabaya, 18 Surabaya, 18 JuliJuli 20052005

CONDITION OF OIL & GAS SECTORCONDITION OF OIL & GAS SECTOR

GLOBALIZATION :WTO, APEC,AFTA

DEVELOPING OFINDUSTRIES State revenues-Source of energytoward the domestic needs

- Form of effort- Investment- Trick of competition

INVESTIGATION TOWARD OIL AND GAS LAW- Strategic excavate object

controlled by the state affectthe livelihood of the people atlarge

- National endurance?- State Enterprise only and

integrated?- Independence, fund maintenance?

OIL

AND

GAS

LAW

-The modern ofoil and gas industries

- Transparent- Efficient- Optimum state

revenues- Aspirate toward

regional- Competition

INTERNAL CHANGE :- Regional autonomy- Law of Anti Monopoly- State Owned Companies

POLICY FRAMEWORK OIL AND GAS SECTORPolicy Constraint Strategy Objectives Policy Outcome Final Outcome

NationWelfare

Professional Competency

Building

OrganizationStructural

Reform

LegalReform

GoodGovernance

SoundEnvironment

Expanding Oil and Gas RevenueContribution In National Economy

- SustainableEconomicGrowth

- Fair And JustIncomeDistribution

Professional Competency Building-Training and Workshop-Code of Conduct-Career Development-Renumeration-Reward and PunishmentOrganizational Reform-Restructuring Program-Reorganization-Transformation-Separation Of Player And Regulator Role-Modernization-Public Participation-ResponsivenessLegal Reform-Legislation-Laws-Ministry Decrees-Business Ethics-State Policies

-Competition

-Level PlayingField

-Equal Opportunity

-Transparancy

-Accountability

-Free Trade/Investment

-Rule of Law

-Public Oriented EconomicPlatform Based On FairAnd Just Market Mechanism-Employing Science AndTechnology Progress ThatSuits Nation’s Character-Inseparable Parts OfNational SustainableDevelopment ProgramWhich Is Based On National Capabilities WhilstTaking Into AccountGlobalization Challenges-Reflects EnvironmentalProtection Policy-In Line With RegionalAutonomous Regulations

- Availability Of Oil And GasAs Energy And FeedstockResources

- Growth In PetroleumBusiness Activities

- Growth In Number Of PlayersIn Petroleum BusinessActivities

- Growth in PetroleumAcreage (New)

- Growth In InvestmentAnd OperationalExpenditures

- Expansion Of PetroleumReserves, Production AndUtilization

- Growth In Job Opportunity- Technology Transfer- Increase of Value Added- Increase Of GovernmentRevenues And Taxes

BusinessVenturesThrough :-BUMN-BUMD-Private> Local> International

-Koperasi

The 1945 Institution Art. 33

POLICY FRAMEWORK ON THE OIL AND GAS SECTORHR DEVELOPMENT AND MANAGEMENT SETTING UP THE

INSTITUTIONSETTING UP THE REGULATION

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

Law 22/2001 : UPSTREAM OIL AND GAS BUSINESS ACTIVITIES

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

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

Support and improve national capacity to be more competitive

at the national, regional, and international level.

Purpose (Art. 3)

Assure that the effective execution and control of

Exploration dan Exploitation business activities

Increase the state revenue

OIL AND GAS NEW POLICYOIL AND GAS NEW POLICY

NEWNEWPREVIOUSPREVIOUS

PLAYER

REGULATOR

SUPERVISOR

•REGULATOR• PLAYER

2001 - RECENT (LAW NO. 22/2001)1970 - 2001

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

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

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.

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.

CURRENT CONDITION(AFTER UU 22/2001)

PAST CONDITION(BEFORE UU 22/2001)

DIT. GEN. OIL & GAS

DIT. GEN. OIL AND GASFUNDAMENTAL

DUTIES & FUNCTIONAccording to

Pres. Decree No. 165 of 2000and others related

Regulation

LAW 22/2001 CONCERNING OIL & GAS

PERTAMINA

Imp. Body

PT. PERTAMINA(PERSERO

Reg. Body

UpstreamFunction

DownstreamFunction

PertaminaAccording to

LAW No.8 of 1971

Gov. Upstream Function

Gov. Do.streamFunction

DIT. GEN. OIL AND GASFUNDAMENTAL

DUTIES & FUNCTIONAccording to

Pres. Decree No. 165 of 2000and others related

Regulation

MANAGEMENT OF OIL AND GAS ACTIVITIES

DIT. GEN. OIL AND GASDIT. GEN. OIL AND GAS/IMPLEMENTING BODYDIT. GEN. OIL AND GASPOST CONTRACTCONTRACTPRE CONTRACT

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

UPSTREAM BUSINESS ACTIVITIES (Art. 11-22)

• Terms & Conditions before Cooperation Contract

• Implementing contract

PUBLICT INTEREST PROTECTION (Art. 40-42)

• Maintenance of occupational health & safety and conservation of the living environment

• Development of local communities

OPTIMIZATION OF ADDED DOMESTIC VALUE (Art. 39-40)

• Utilization of domestic goods, services, technology, and engineering and design capabilities

• Used of local manpower

OPTIMIZATION OF STATE REVENUE(Art. 3, 31, 39-42)

• Technical Principle • Asset maintaince• Standardization• Term & Conditions

Higher Oil and Gas Revenue Contribution in the National Economy

• Sustainable National Economic Growth• Fair and Just Income Distribution

Nation Welfare

GOVERNMENT REGULATION ON LAW NO. 22/2001

1. 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

DEVELOPMENT AND SUPERVISION OF UPSTREAM OIL AND GAS ACTIVITIES

DEVELOPMENT(DIT. GEN. OIL AND GAS)

UPSTREAM OIL & GAS ACTIVITIES

TASK AND FUNCTIONDIT. GEN. OIL AND GAS

GOV. REGULATION 42/2002

• GOVERNMENT AFFAIRS OF UPSTREAM OIL & GAS ACTIVITIES

• DETERMINATION OF POLICIES/ REGULATION ON UPSTREAM OIL & GAS ACTIVITIES

ARTICLE 39 (1)

OIL AND GAS STATE CONTROL

GOVERNMENTMANAGEMENT

BASED ON THE COOPERATIONCONTRACT

IMPLEMENTING BODY

SUPERVISION

COMPLIANCE WITH PREVAILINGLAW AND REGULATION

MINISTRY OF ENERGY & MINERALRESOURCES/DIT GEN OIL & GAS AND

OTHER RELATED MINISTRIES

ARTICLE 4 (1)

ARTICLE 4 (2)

TASK AND FUNCTIONIMPLEMENTING BODY

FOR MINISTRY OF ENERGY & MINERAL RESOURCES/ DIT. GEN. OIL & GAS

DEVELOPMENT AND SUPERVISION OF UPSTREAM OIL AND GAS ACTIVITIES

PRE CONTRACT POST CONTRACTCONTRACT

DIT. GEN. OIL AND GASDEVELOPMENT AND SUPERVISION

IMPLEMENTING BODYSUPERVISION

HIGHLIGHT OF UPSTREAM OIL AND GAS BUSINESS ACTIVITIES (LAW NO. 22/2001)

1. UPSTREAM BUSINESS ACTIVITIES (ART. 11 – 22)TERM & CONDITIONS BEFORE COOPERATION CONTRACT (KKS)TERM & CONDITIONS DURING EXECUTION KKS

2. OPTIMATION OF STATE REVENUE (ART. 3, 31, 39 – 42)ENGINEERING PRACTICESASSET MANAGEMENTSTANDARDIZATIONTERM & CONDITION

3. MASTERY AND UTILIZATION (ART. 4)OIL MASTERY BY GOVERNMENTGOVERNMENT AS THE HOLDER OF MINING RIGHTSIMPLEMENTATION OF MASTERYCONDUCT UPSTREAM BUSINESS ACTIVITIES

4. PUBLIC INTEREST PROTECTION (ART. 40 – 42)HEALTH, SAFETY, AND ENVIRONMENT MANAGEMENT

LOCAL COMMUNITY DEVELOPMENT

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)

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.

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 MANPOWER16. 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.

Plan of Development (POD)

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.

• 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).

PODDevelopment 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

Plan of Development (GR 35 Art.95-96)• 1st 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.

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)

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)

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)