After BPMigas exit, doubts on who signs contracts

JAKARTA. The court-ordered dissolution of upstream regulator BPMigas means that it is uncertain who will sign oil and gas production sharing contracts (PSCs) for the government. a government official says.

Also uncertain is the extra liability to the government if Energy and Mineral Resources Minister Jero Wacik, who leads the interim task force filling in the regulator’s shoes, signs off on the new PSCs himself.

The ministry’s oil and gas director general, Evita Herawati Legowo, said that she and her staff were reviewing the issue.

“Previously, the energy minister only acknowledged the contracts, while the person who approved it was the head of BPMigas. Under the new regulations, however, the minister himself as the head of the task force should sign the contracts,” Eva told reporters in Jakarta on Tuesday.

The SKSPMigas task force was quickly created by the government after the Constitutional Court ordered the dissolution of BPMigas in a verdict issued on Nov. 13 that declared the body unconstitutional.

The court ordered the government, namely the Energy and Mineral Resources Ministry, to temporarily take over the functions of the erstwhile regulatory bureau until a new permanent body could formed under a planned revision to the 2001 Oil and Gas Law or until the formulation of a new law.

Experts, including University of Indonesia legal observer Hikmahanto Juwana have said that the current scheme would place the government in jeopardy if there legal disputes emerged between oil and gas contractors that needed to be settled through international arbitration agencies, such as the International Centre for Settlement of Investment Disputes (ICSID).

“Under the old regulations, the government’s responsibility should the state lose in an international arbitration dispute was limited to the stake or assets that it had in BPMigas, a state-owned legal agency. Now, the state’s assets will be exposed to pay compensation,” Hikmahanto said in a statement.

On the potential increased liability, Evita said the her officials would continue their study to determine the best solution.

The Energy and Mineral Resources Ministry has plans to sign PSCs for five blocks this November for one shale gas block, coal bed methane (CBM) blocks and conventional oil and gas blocks.

The government has taken international arbitration issues seriously after a case in 2000, when state oil and gas company PT Pertamina still had the right as an administrator of the nation’s the oil and gas industry.

At that time, Pertamina was ordered by the International Arbitration Institute in Switzerland to pay around US$300 million to power company Karaha Bodas Company after the government annulled its contract due to the Asian financial crisis in 1997.