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Indonesia: Plan to Modify Rules on Natural Gas

(Dec. 18, 2015) It was reported on December 11, 2015, that the Indonesian government is planning to revise the 2015 Regulation of the Ministry of Energy and Mineral Resources on Provisions and Procedures for Determining the Allocation, Utilization, and Price of Natural Gas (Regulation No. 37, 2015). The goal of the revision is to stimulate growth in the domestic natural gas sector. (Marcell Sihombing & Kartini L. Makmur, Natural-Gas Regulation Revised, HUKUMONLINE (Dec. 11, 2015); Regulation No. 37, 2015 (Oct. 23, 2015), Ministry of Energy and Mineral Resources website (in Indonesian).)

The Regulation requires businesses seeking natural gas allocations to own the necessary physical infrastructure, including pipelines. That rule was designed to encourage the development of needed infrastructure. (Sihombing & Makmur, supra.) According to Wiratmaja Puja, the Director General for Oil and Natural Gas for the Ministry of Energy and Mineral Resources, who spoke in Jakarta on December 7, 2015, under the 2015 Regulation “[a]nyone who is looking to secure an allocation of gas must construct the relevant infrastructure. … and there can be no ifs or buts.” (Id.) He added that the Regulation has not yet been enforced and asserted that the government wants a “level playing field” for all parties in the gas sector to compete, whether they are state-owned enterprises, regionally controlled enterprises, or private businesses. To reach that goal, Puja stated, the regulation must be revised. He argues, however, that the infrastructure requirement does not need to be changed. (Id.)

The revised regulations will have provisions on the role of foreign parties in natural gas enterprises. In order to satisfy the requirements to apply for a gas allocation, a foreign business would have to register under Indonesian law, and therefore cooperate with an Indonesian partner. That partner could be from either private industry or the public sector. That cooperation could be in a variety of forms, including investment to facilitate the construction of a long pipeline. (Id.)