1 Legal and regulatory framework
1.1 What role does the national state play in the oil and gas industry in your jurisdiction? Are oil and gas rights owned by the state or is private ownership allowed?
Under Indonesian oil and gas laws and regulations:
- the state retains mineral rights throughout the Indonesian territory; and
- the government of Indonesia holds the mining authority.
Private companies earn the right to explore and exploit oil and gas resources by entering into cooperation contracts, mainly based on a production sharing scheme under a production sharing contract (PSC) with the government through the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas). Private companies thus act as a contractor to SKK Migas. Extracted oil and gas is owned by the state until it passes the point of export or some other delivery point. Thereafter, the government is entitled to a certain percentage of the production output as apportioned under the PSC, as is the contractor.
Pertamina, as a state-owned enterprise (SOE) and the state oil company, can hold participating interest in numerous PSCs as a contractor of SKK Migas. In addition, Ministry of Energy and Mineral Resources (MEMR) Regulation 23/2021 regarding Management of Oil and Gas Working Areas for Expiring Cooperation Contracts stipulates that Pertamina may elect to resume the operation of a work area whose PSC is expiring, irrespective of whether the initial PSC contractor has applied for an extension. If both Pertamina and the initial PSC contractor express willingness to operate the work area, the MEMR has the authority to decide whether the operation will be resumed by Pertamina, the initial PSC contractor or jointly between the two.
Upon the first plan of development approval, a PSC contractor must offer a 10% participating interest in its PSC to a regional-owned enterprise (BUMD) that:
- is a regional entity wholly owned by the regional government;
- is at least 99% owned by the regional government, with the remaining 1% owned by a regional government-affiliated entity;
- is established pursuant to a regional government regulation; and
- does not conduct any business activity other than the management of the offered participating interest.
The BUMD may accept or decline the offer based on its financial capability. If the BUMD declines the offer, the participating interest must then be tendered to an SOE.
1.2 Which national legislative and regulatory provisions govern the oil and gas industry in your jurisdiction?
Indonesia's oil and gas sector is governed by Law 22/2001 regarding Oil and Natural Gas, as amended by Law 11/2020 regarding Job Creation (collectively, the ‘Oil and Gas Law').
The oil and gas sector comprises upstream and downstream activities, which are regulated and organised separately. Upstream activities include exploration and exploitation, and are regulated under Government Regulation 35/2004 regarding Upstream Oil and Natural Gas Business Activities, as last amended by Government Regulation 55/2009. The upstream sector is managed and supervised by SKK Migas. Due to the unique territorial composition of the archipelagic state of Indonesia, upstream oil activities may be undertaken in onshore and offshore areas. Work areas for onshore and offshore operations are determined by the MEMR based on consultations with and recommendations from the respective regional governments.
The Job Creation Law requires business actors in the upstream sector to obtain at least a business identification number (NIB) and a business licence from the central government before conducting business activities. Government Regulation 5/2021 on the Implementation of Risk-Based Business Licensing clarifies that the business licence for upstream oil and gas activities is in the form of a PSC and NIB.
Downstream activities encompass processing, transportation, storage and trading, and are regulated under the Oil and Gas Law and Government Regulation 36/2004 regarding Downstream Oil and Natural Gas Business Activities, as amended by Government Regulation 30/2009. Downstream operations fall under the auspices of the MEMR and the Downstream Oil and Gas Regulatory Agency (BPH Migas).
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. It designates a single integrated business licence that is applicable for all of the foregoing business activities. This business licence will be processed through an online system managed by the central government. Only business entities established in Indonesia are eligible to obtain a downstream business licence, subject to the applicable foreign shareholding restriction stipulated in the Positive Investment List under Presidential Regulation 10/2021 regarding Investment Business Activities. The Positive Investment List is Indonesia's new investment list of business lines that are open or closed for foreign investment.
1.3 What other national legislative and regulatory provisions have relevance for oil and gas activities in your jurisdiction?
The following key developments occurred in 2020 and 2021:
- the issuance of the Job Creation Law, which amended 79 laws, including the Oil and Gas Law;
- the issuance of a government regulation overhauling Indonesia's licensing regime into a risk-based system (Government Regulation 5/2021);
- the issuance of an MEMR regulation on the use of flare gas in the oil and gas business (MEMR Regulation 17/2021 regarding Implementation of Flare Gas in Oil and Gas Business Activities);
- the issuance of an MEMR regulation amending an existing MEMR regulation on the downstream oil and gas business (MEMR Regulation 19/2021 regarding the Amendment of MEMR Regulation 4/2018 regarding Natural Gas Business in Oil and Gas Downstream Activities);
- the issuance of an MEMR regulation on the management of work areas that are close to expiration (MEMR Regulation 23/2021);
- the issuance of MEMR regulations prioritising the fulfilment of domestic needs, the calculation of the retail sale price of oil, and reducing gas sale prices for specific industries and power plants, including:
- MEMR Regulation 8/2020 regarding Procedures for the Determination of the Users and Specific Prices for Natural Gas in the Industrial Sector;
- MEMR Regulation 18/2021 regarding Priority Petroleum Utilisation for the Fulfilment of Domestic Needs;
- MEMR Regulation 29/2021 regarding Calculation of Retail Sales Prices for Oil Fuels; and
- MEMR Decree 134.K/HK.02/MEM.M/2021 regarding Certain Users and Prices of Natural Gas within the Industrial Sector;
- the issuance of SKK Migas policies relating to upstream oil and gas operations in response to the COVID-19 pandemic, including SKK Migas circular letters issued on 4 February and 3 March 2020; and
- the issuance of an MEMR regulation granting certain PSC contractors the flexibility to adopt the cost recovery or gross split mechanism (MEMR Regulation 8/2017 regarding Gross Split PSC, as amended several times, most recently by MEMR Regulation 12/2020).
1.4 Are there any regional treaties or laws that need to be taken into account?
As a matter of international law, international treaties and other multinational agreements are binding on the state upon ratification. Such international instruments are normally ratified by way of a presidential regulation, which will be further implemented by a ministerial regulation. All regulations and decrees issued thereafter must not deviate from the provisions of the international treaty or the national regulation enacted in light thereof. Therefore, once an international treaty is binding on the government, regulatory policy or activity must develop in accordance with the international treaty. Among others, Indonesia is a party to:
- the United Nations Convention on the Law of the Sea;
- the 1987 Montreal Protocol; and
- the International Convention on Civil Liability for Oil Pollution Damage and the protocols and amendments thereto.
Indonesia has entered into many bilateral tax treaties with other countries to avoid the imposition of double taxation in both countries. As of 2020, Indonesia had entered into double taxation treaties with 66 countries, with contracting states including Australia, France, Japan, Malaysia, Singapore, the United Arab Emirates and the United States.
1.5 Which national regulatory bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
The government regulates and supervises the upstream oil and gas industry through the MEMR and SKK Migas. The MEMR stipulates regulations and oversees the oil and gas industry, while SKK Migas manages and supervises the upstream sector. In general, SKK Migas has the right to organise the management of upstream oil and gas activities, to the extent that the management is in accordance with the relevant PSC. Meanwhile, the downstream sector is managed and supervised by the MEMR and BPH Migas.
1.6 What is the national regulators' general approach in regulating the oil and gas industry?
The MEMR, through the Directorate General of Oil and Gas, oversees affairs in the energy and mineral resources sector, including:
- supervision of the implementation of oil and gas business activities;
- preparation of policies for the upstream oil and gas business sector;
- determination of cost-recoverable and non-cost-recoverable activities in the upstream oil and gas business; and
- issuance of approvals related to upstream oil and gas activities, such as:
- the first plan of development;
- the transfer of a participating interest; and
- the direct and indirect change of control of entities holding a PSC.
SKK Migas is responsible for the issuance of policies and working guidelines for upstream oil and gas activities, including the administration of:
- working areas;
- work programme and budget; and
- field development plans.
For downstream activities, under Government Regulation 36/2004, the MEMR is responsible for:
- business licences;
- the type, standard and quality of fuels;
- the distribution of gas fuels;
- the utilisation of natural gas;
- natural gas reserves;
- occupational health and safety;
- mechanism and formulation of gas and oil fuels;
- supply and distribution of certain oil fuels; and
- optimisation of the potential of national capabilities.
Under the Oil and Gas Law, BPH Migas is responsible for the regulation and stipulation of:
- fuel supply and distribution;
- national fuel reserves;
- beneficial use of fuel transportation and storage facilities;
- tariffs on natural gas transportation through pipelines;
- natural gas prices for households and small-scale customers; and
- natural gas transmission and distribution.
1.7 What role do provincial, state and/or other local government regulatory bodies play in the regulation of the oil and gas industry?
Law 23/2014 on Regional Government, as most recently amended by the Job Creation Law, states that the central government is directly responsible for the management of the oil and gas industry. As a consequence, regional governments have limited powers in this sector. In both the upstream and downstream sectors, it may be necessary to obtain other relevant licences from the central government and regional governments, such as licences relating to health, safety and environment and land.
2 Oil and gas industry
2.1 How mature is the oil and gas industry in your jurisdiction?
At the end of 2020, Indonesia's proven natural gas reserves recorded in the BP Statistical Review of World Energy 2021 amounted to 44.2 trillion cubic feet. Gas production reached 63.2 million tonnes per annum, representing 64% of the total oil and gas production in Indonesia. Of the foregoing production, 16.8 billion cubic metres was exported as liquefied natural gas and 7.3 billion cubic metres was exported through pipelines.
According to the BP review, there were 2.4 billion barrels of proven oil reserves in Indonesia as of the end of 2020, putting Indonesia at number 22 among the world's oil producers. Oil production reached 743,000 barrels per day – a 4.9% decrease on the production rate in 2019. In 2019, Indonesia's oil and gas revenue contributed roughly 5% of state revenue.
The 2020 Annual Report of the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) recorded that, after terminating 18 production sharing contracts (PSCs) in 2019, Indonesia had a total of 189 PSCs, comprising:
- 70 PSCs in the exploration stage;
- 95 PSCs in the exploitation stage; and
- 24 non-conventional exploration PSCs.
The 2019 Annual Report of the Directorate General of Oil and Gas stated that only 19 new PSCs were signed in the past four years. This could be a result of the change in the PSC system from cost recovery to a gross split mechanism, as well as the cancellation of tenders for working areas in 2020 due to the COVID-19 pandemic. All tenders for contract areas were postponed in 2020 as a result of COVID-19, affecting tenders for 12 working areas, consisting of 10 conventional and two non-conventional working areas. In 2021, the government has thus far opened tenders for six contract areas, as follows:
- South CPP (onshore Riau), through direct offer;
- Sumbagsel (onshore South Sumatra), through direct offer;
- Rangkas (onshore Banten and West Java), through direct offer;
- Liman (onshore and offshore East Java), through direct offer;
- Merangin III (onshore South Sumatra and Jambi), through regular bidding; and
- North Kangean (offshore East Java), through regular bidding.
According to the 2020 PwC Guide, in the downstream sector, there are nine oil refineries in the country with a combined installed capacity of 1.1 million barrels per day.
2.2 What are the key oil and gas products which are produced in your jurisdiction and where are activities typically based?
Most oil upstream activities are focused in western Indonesia, with the main areas for oil production being:
- the Java Sea;
- East Kalimantan; and
- the Natuna Sea.
The government has been encouraging exploration activities in eastern parts of Indonesia, where, according to the 2020 PwC Guide, 39 tertiary and pre-tertiary basins show rich promise in hydrocarbons.
Indonesia's main areas for gas production are:
- South Sumatra;
- East Kalimantan;
- the Natuna Sea;
- Sulawesi; and
- West Papua.
2.3 Who are the key players in the oil and gas industry in your jurisdiction?
PSCs are signed by companies with the government, through SKK Migas, to manage oil and gas resources. In Indonesia, the majority of oil and gas PSC contractors are multinationals. Notable companies in the oil and gas sector include:
- BP Tangguh;
- Medco; and
- Mobil Cepu Ltd.
State-owned enterprises such as Pertamina also dominate several key sectors – in particular, fuel distribution and the operation of oil refineries.
2.4 How are the following reflected in the domestic energy mix?
(a) Oil and gas
(b) Imports and exports?
(a) Oil and gas
PSC contractors are required by law and contract to reserve 25% of their oil and gas production for the domestic market. Currently, Indonesia's natural gas requirements are fully met by domestic production – particularly by the allocation of the domestic market obligation from every PSC contractor. According to the BP 2021 Report, the ratio of Indonesia's natural gas production to consumption in 2020 was 154%.
However, the Indonesian National Energy Council's 2019 Indonesia Energy Outlook report noted that Indonesia has been unable to meet oil demand with domestic production alone. Domestic crude oil production has declined from 346 million barrels in 2009 to 283 million barrels in 2018.
(b) Imports and exports
According to Indonesia's Central Statistics Body, Indonesia exported approximately 18.3 million tonnes of gas and 4.9 million tonnes of crude oil in 2020 (www.bps.go.id/statictable/2014/09/08/1003/volume-ekspor-dan-impor-migas-berat-bersih-ribu-ton-1996-2020.html).
The Central Statistics Body recorded Thailand and Singapore as the top two countries to which Indonesia exports crude oil, at approximately 1.6 million tonnes and 718 million tonnes in 2020, respectively (www.bps.go.id/statictable/2014/09/08/1011/ekspor-minyak-bumi-mentah-menurut-negara-tujuan-utama-2000-2020.html). Indonesia also exports gas to Singapore and China, at approximately 5.9 million tonnes and 5.3 million tonnes in 2020, respectively (www.bps.go.id/statictable/2014/09/08/1013/ekspor-gas-menurut-negara-tujuan-utama-2000-2020.html).
To meet domestic demand, Indonesia imports crude oil and petroleum products. The Indonesia Energy Outlook 2019 of the Ministry of Energy and Mineral Resources notes that Indonesia's oil import dependency is around 35%.
3 Exploration and production
3.1 What rights are required to undertake exploration and production in your jurisdiction? Do these vary depending on the type or location of the activity?
Under the Oil and Gas Law, entities in the form of a state-owned enterprise, a regional-owned enterprise or a private business entity (ie, a business entity or a permanent establishment) may enter into a production sharing contract (PSC) with the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) to undertake upstream oil and gas business activities.
Upstream oil and gas business activities are implemented by a PSC signed by a business entity or a permanent establishment with SKK Migas. There are two main types of PSC in Indonesia. In the traditional production sharing scheme used in Indonesia – the cost recovery PSC – production output is typically subject to a first tranche petroleum (FTP) requirement, cost recovery and certain taxes. The remaining portion is distributed between the PSC contractor and the government in the proportions set out in the PSC. All financial risks related to the operations under the PSC are borne by the PSC contractor. If a working area proceeds to the exploitation stage, the PSC contractor is entitled to cost recovery.
The other type of PSC was introduced by the government in early 2017 through Ministry of Energy and Mineral Resources (MEMR) Regulation 8/2017. The gross split PSC employs a gross split production sharing scheme, by which production output is split at gross (without FTP, cost recovery or tax deductions) in proportions stipulated at the beginning of field development and subject to fluctuation, depending on certain variables and progressive components.
3.2 What regulatory or contractual requirements must be satisfied to obtain exploration and production rights?
Pursuant to MEMR Regulation 35/2008 regarding Procedures for the Stipulation and Tender of Oil and Gas Working Areas, a working area can be offered through either a direct offer or a tender. In a direct offer, a company that performs a technical assessment through a joint study with the Directorate General of Oil and Gas (DGOG) will receive the right to match the highest bidder of the tender round. Most new working areas are awarded through a tender process.
3.3 If there is state ownership of oil and gas rights in your jurisdiction, what is the procedure for obtaining exploration and production rights? How long does this typically take?
Exploration and exploitation rights for oil and gas are given through PSCs. Under MEMR Regulation 35/2008, the steps to the PSC tender process are as follows:
- Obtain the official bid information package from the DGOG to register as a tender participant.
- Purchase the government data package for the specific block being tendered to support the technical evaluation and prospective exploration programme.
- Attend a clarification forum before the tender date.
- Submit two copies of the bid documents before the tender closing date.
Submitted bid documents will be evaluated by the MEMR Oil and Gas Technical Tender Team for New Working Areas. Evaluations will take into account:
- technical evaluation;
- financial evaluation; and
- performance evaluation.
The DGOG will announce the tender winner with a recommendation from the Tender Team.
3.4 Who can own exploration and production rights in your jurisdiction? Do specific requirements or restrictions apply to foreign operators? Do any indigenous ownership requirements apply?
Private companies can enter into PSCs with the government, represented by SKK Migas, to obtain exploration and production rights. Under the Oil and Gas Law and Government Regulation 35/2004, upstream oil and gas business activities may be carried out by a business entity or a permanent establishment.
A ‘business entity' is a legal entity established under the laws of Indonesia and operating and domiciled in Indonesia. It may be in the form of:
- a state-owned enterprise;
- a regional-owned company;
- a cooperative;
- a small-scale business; or
- a private business entity.
A business entity can be in the form of a wholly Indonesian-owned company or a partially or wholly foreign-owned company (PMA).
A foreign oil and gas company is permitted under the Oil and Gas Law to hold a participating interest in a PSC as a permanent establishment. A ‘permanent establishment' is a business entity established and existing outside the territory of Indonesia that engages in activities within the territory of Indonesia and is subject to prevailing Indonesian laws and regulations. An offshore subsidiary holding a participating interest in a PSC is considered to be a permanent establishment.
Foreign oil and gas companies can also establish a foreign investment company, known as a PMA, to engage in upstream oil and gas activities in Indonesia. Under the current Positive Investment List stipulated in Presidential Regulation 10/2021, upstream oil and gas activities in Indonesia are open to 100% foreign ownership.
Based on the ‘ring-fencing' principle under the Oil and Gas Law, only one PSC may be granted to each company, meaning that one company cannot hold a participating interest in more than one PSC. However, several companies can own a participating interest in a single PSC.
3.5 If there is state ownership of oil and gas rights in your jurisdiction, what fees and other charges are incurred in obtaining exploration and production rights?
Based on Government Regulation 81/2019 regarding Types and Tariffs of Non-Tax State Revenues Applicable to the MEMR, the government charges $5,000 for the bid information package and there is another fee for the official government data package for a specific tendered area. In addition, PSC contractors are required to pay non-tax state revenues such as exploration and exploitation fees and bonuses, including a signing bonus and production bonus.
3.6 What is the duration of exploration and production rights? What is the process for renewal?
A PSC is normally granted for 30 years and can be extended by up to 20 years. The exploration period can be carried out for six years and can be extended once for a maximum period of four years.
Government Regulation 35/2004 provides that PSC contractors may apply to the MEMR, through SKK Migas, for a PSC extension. The procedures and requirements to apply for the extension of a PSC are further governed by MEMR Regulation 23/2021.
The MEMR can grant a maximum PSC extension of 20 years. An extension request may be submitted to SKK Migas at the earliest 10 years before the expiration of the initial term of the PSC and at the latest two years before its expiration. However, a PSC contractor that has already signed a gas sale agreement – whether in the form of a gas sale agreement, letter of intent, memorandum of understanding or heads of agreement – may apply earlier than 10 years before the expiration of the PSC.
Further, Article 8 of MEMR Regulation 23/2021 grants Pertamina the right to apply for the management of a PSC working area that will expire at the earliest 10 years and at the latest two years before the PSC expires, or on a different timeframe as determined by the MEMR.
In approving the PSC extension, the MEMR will consider the results of the evaluation by SKK Migas and factors such as:
- oil and gas reserves in the working area;
- market potential; and
- technical and economic feasibility.
After evaluating the extension application of the operator of the expiring PSC and any request by Pertamina to take over the PSC, the MEMR may decide to:
- grant the extension of the PSC to the PSC contractor;
- grant the management of the working area of the concerned PSC to Pertamina;
- grant joint management of the working area of the concerned PSC to Pertamina and the PSC contractor; or
- decide to conduct a tender for the management of the working area covered by the concerned PSC.
3.7 What are the operator's rights and obligations under exploration and production rights?
The rights and obligations of a PSC contractor are regulated by the relevant PSC. Government Regulation 35/2004 provides that a PSC should at least contain the following provisions:
- payment of state revenues such as taxes and non-tax revenue from oil and gas activities;
- the working area and its relinquishment;
- obligatory funding expenses;
- the transfer of ownership of oil and gas production;
- the contract period and contract extension requirements;
- the procedure and venue for the settlement of disputes;
- the obligation to supply crude oil or natural gas (or both) for domestic needs;
- post-mining operation obligations;
- occupational health and safety;
- environmental management;
- the transfer of rights and obligations;
- reporting requirements;
- field development plans;
- preferential utilisation of domestic goods and services;
- the development of the surrounding community and a guarantee of the rights of nearby traditional communities; and
- the prioritisation of the use of Indonesian workers.
3.8 Are there any requirements re relinquishment of exploration and production rights or part of the area covered by such rights?
Under the Oil and Gas Law and Government Regulation 35/2004, the PSC contractor must relinquish parts or the entirety of its working area in stages to the MEMR, through SKK Migas, in accordance with the schedule as provided in the relevant PSC.
3.9 Can exploration and production rights be transferred or assigned? If so, how and subject to what government consents? Do any fees, taxes or other charges apply to direct or indirect transfers?
During the first three years of the exploration period (the ‘firm commitment' period), a PSC contractor is not allowed to:
- transfer the majority of its to a non-affiliated party; or
- transfer a certain percentage of its participating interest that would result in the participating interest transferee holding a higher percentage of participating interest than any other initial contractor.
Change of operatorship in a PSC during the firm commitment is also prohibited. After this period, the transfer of a participating interest may be conducted with the approval of the MEMR based on the consideration of SKK Migas.
A PSC typically provides an approval or notification requirement for the transfer of all or a portion of the PSC contractor's participating interest to an affiliate or a non-affiliated third party. From 2008 onwards, PSCs have stipulated that transfers of participating interests to affiliates and changes of control in a party to a PSC require the prior written consent of the MEMR, through SKK Migas. Similarly, MEMR Regulation 48/2017 regarding the Supervision of Business Activities in the Energy and Mineral Resources Sector and SKK Migas Working Guidelines (PTK) 57/2018 Rev 1 regarding the Administration of Cooperation Contracts (PSCs) stipulate that the transfer of a participating interest in a PSC requires the prior approval of the MEMR.
Pursuant to MEMR Regulation 48/2017, the indirect transfer of a participating interest through the transfer of shares of the PSC contractor requires MEMR approval based on the consideration of SKK Migas if the transfer pertains to majority shares, thus resulting in a direct change of control of the PSC contractor. If the transfer of shares results in an indirect change of control of the PSC contractor, it need only be reported to the MEMR through SKK Migas.
In addition, the direct and indirect transfer of a participating interest and a change of control are subject to taxes imposed by Government Regulation 79/2010, as amended by Government Regulation 27/2017 regarding Recoverable Operating Costs and Income Tax Treatment in the Upstream Oil and Gas Business Sector; Government Regulation 93/2021 regarding Income Tax Treatment on the Transfer of Participating Interest for Upstream Oil and Gas Business Activities; and Minister of Finance Regulation 257/PMK.011/2011 regarding Procedures for Withholding and Remittance of Income Tax on Contractors' Other Income in the Form of Uplift or Other Similar Compensation and/or Contractors' Income from Transfer of PI.
Under Government Regulation 93/2021, income derived from the transfer of directly owned or indirectly owned participating interests will be subject to final income tax. For the transfer of a participating interest during the exploration period, a rate of 5% of the gross amount applies; while for the transfer of a participating interest during the exploitation period, a rate of 7% of the gross amount applies.
3.10 Can security be taken over exploration and production rights?
A PSC contractor must provide a performance bond by the time of execution of the PSC, the amount of which depends on the type of the contract area. Under MEMR Regulation 35/2008, the performance bond for open areas, a portion of the contract area that is carved out based on the PSC and areas for which the PSC has expired is 10% of the total firm commitment value, with a minimum sum of $1.5 million. Areas that have never been developed, or that are being or have been produced, are subject to a performance bond in an amount equivalent to 10% of the work programme and budget (WP&B) for the first two years of the exploration period, with a minimum sum of $1 million. Further, a parental guarantee may be required by SKK Migas for a company intending to acquire participating interest in a PSC, subject to SKK Migas' assessment of the company's audited financial statements.
3.11 What contractual or regulatory provisions apply with regard to cessation of exploration and production or abandonment of exploration and production rights?
New-generation PSCs stipulate an express obligation to carry out an abandonment and site restoration (ASR) programme and to provide ASR funds. The Oil and Gas Law highlights post-operation obligations as a means of ensuring environmental management and protection, and Government Regulation 35/2004 obliges PSC contractors to allocate funds for post-operation activities.
In 2018, the MEMR issued MEMR Regulation 15/2018 regarding Post-Operation Upstream Oil and Gas Business Activities. This regulation requires PSC contractors to conduct post-operation activities by using post-operation activity funds. A post-operation activity plan is required to be prepared and submitted to SKK Migas through the submission of a WP&B (if the PSC is in the exploration stage) or as part of the field development plan (if the PSC is in the exploitation stage). Prior to implementing post-operation activities, PSC contractors are also required to obtain approval of the post-operation activity plan from the DGOG. PSCs that do not contain provisions regarding post-operation obligations are subject to MEMR Regulation 15/2018. The procedures to reserve and deposit ASR funds are set forth in SKK Migas Working Guidelines 40/2018.
4 Surface rights
4.1 Does the law of your jurisdiction distinguish between exploration and production rights and surface rights? If so, how does an owner of exploration and production rights acquire surface rights?
Under the Oil and Gas Law, oil and gas operations must be carried out within the Indonesian mining territory. The right of a production sharing contract (PSC) contractor to a working area does not include the right to land surface. Generally speaking, land rights will be obtained by negotiating with owners and occupiers, in accordance with prevailing laws. To the extent that these facilities are used for upstream activities within the framework of a cooperation contract, the PSC contractor will have to comply with the Oil and Gas Law, Government Regulation 35/2004 and the relevant implementing regulations to be issued thereunder. PSC contractors are responsible for the payment of these rights. Land that is purchased for a facility will become the property of the state; while land that is leased for a facility will be leased in the name of the PSC contractor.
4.2 Where surface rights are acquired, what are the operator's rights and obligations as regards the landowner? And what are the landowner's rights and obligations as regards the operator?
A PSC contractor intending to use surface rights must reach a settlement with the landowner or title holder. This settlement must be done through deliberation to reach consensus, with deliberations involving the local community to decide on:
- the method of sale and purchase;
- appropriate compensation;
- recognition; or
- other forms of compensation.
The landowner or title holder must permit the PSC contractor to carry out exploration and production once the PSC contractor presents the relevant PSC or makes a settlement for the use of the land.
4.3 Is there a process for the mandatory acquisition of surface rights? If so, what does this involve?
Under Law 2/2012 regarding Land Procurement for Public Interest Developments, as amended by the Job Creation Law, and Government Regulation 19/2021 regarding Implementation of Land Procurement for Public Interest Developments, land for oil and gas operations can be acquired by concerned institutions (eg, state organs, ministries, the regional or central government, mandated state-owned entities) under the land acquisition scheme for public procurement purposes. This land acquisition scheme can be used for the development of:
- oil, gas and geothermal infrastructure; and
- industrial areas for the upstream and downstream oil and gas industry commissioned and/or controlled by:
- the central government;
- regional governments;
- state-owned entities; or
- regional government-owned entities.
Further procedures on land procurement for public purposes (including for oil and gas infrastructure and upstream and downstream oil and gas industrial areas) are provided in Government Regulation 19/2021, which states that land procurement for public purposes involves the following stages:
- implementation; and
- submission of results.
4.4 Are any native title issues applicable?
There is a possibility of native title issues, which may relate to rights to land. Indonesia acknowledges customary and native rights, both of which are uncertified. Such rights are typically proven through documents showing payment of taxes, sometimes in the form of letters known as surat girik. Communities or persons need not furnish written evidence of ownership if they have undisturbed use of the land as evidenced, for example, by structures or planted vegetation. Land ownership may also be based on historical or hereditary claims, which are not evidenced by structure or planted vegetation. Such claims may be verified by communicating with local government officials such as the village chief.
4.5 Are any other rights needed to use the land (eg, zoning permissions or planning requirements)?
Under Government Regulation 35/2004, PSC contractors must pay compensation for the land they intend to acquire. For uncertified land rights, such as customary and native rights, compensation and a deed of relinquishment must be presented before the qualified local government official (ie, the village chief or district chief). The PSC contractor must also obtain a location permit for the area from the regional head of the government, such as the regent. Once the PSC contractor has obtained the necessary permits, provided an approved security guarantee and shown its PSC, the community must allow the PSC contractor usage of the land.
5 Processing, refining and export
5.1 What requirements and restrictions apply with regard to the processing and refining of oil and gas?
Government Regulation 36/2004 provides that businesses that carry out processing of crude oil and natural gas must obtain a processing business licence from the Ministry of Energy and Mineral Resources (MEMR). In conducting processing activities, the business entity must ensure that health, safety and environmental standards are fulfilled. The holder of the processing business licence must submit reports to the MEMR and the Downstream Oil and Gas Regulatory Agency regarding annual plan, monthly realisation, and cessation of operations for the maintenance of processing facilities in order to maintain the availability of oil. Under MEMR Regulation 29/2017 regarding Licences on Oil and Gas Activities, as most recently amended by MEMR Regulation 52/2018, the processing business licence covers:
- petroleum processing;
- natural gas processing; and
- processing of processed products.
5.2 What requirements and restrictions apply to the export of oil and gas?
Cross-border deliveries of natural gas are subject to import or export approvals from the Ministry of Trade, which will take into account the import or export recommendation from the Directorate General of Oil and Gas (DGOG). The DGOG considers domestic supply and demand in issuing such recommendations. In regard to imports in general, an additional licence is required in the form of a business identification number (NIB), in accordance with Government Regulation 5/2021. The NIB acts as an import licence issued by the Online Single Submission system implemented under the auspices of the Indonesian Capital Investment Coordinating Board. Although the import of natural gas is not specifically subject to an NIB pursuant to Government Regulation 5/2021, in practice, entities that import natural gas are required to obtain an NIB. In addition, Article 42(1)(k) of Government Regulation 5/2021 requires a recommendation for the export of oil and gas resulting from upstream oil and gas business activities from the MEMR as one of the business licensing to support oil and gas business activity.
Government Regulation 1 2019 regarding Export Proceeds from the Exploitation, Management, and/or Processing of Natural Resources requires foreign exchange proceeds deriving from the export of natural resources, including oil and gas, to be placed in the Indonesian financial system through a special account in an Indonesian foreign exchange bank, which must be licensed by the Financial Services Authority. The Indonesian branch offices of overseas banks do not qualify as Indonesian foreign exchange banks. The placement of the export proceeds in a special account must be carried out no later than the end of the third month after issue of the registration of export declaration. The funds in the special account can be utilised by the production sharing contract contractor only for certain payments, such as customs, loans, imports, profits/dividends and other purposes permitted by the Law 25/2007 regarding Capital Investment. Such special accounts are eligible for a tax incentive in the form of the reduction of deposits tax (ranging from 0% to 10%), as opposed to the normal deposit tax of 20%.
6 Transport and storage
6.1 What requirements and restrictions apply with regard to the transport and storage of oil and gas? Do these vary in the case of cross-border transportation?
Transportation and gas storage, as downstream activities, are regulated under Government Regulation 36/2004. Such activities require a downstream business licence from the central government, which may also be used for other downstream oil and gas activities (eg, transportation, processing and trading). A company engaging in the gas storage business must offer facility sharing to a third party by considering the technical and economic aspects.
In addition to a gas transportation licence from the Directorate General of Oil and Gas (DGOG), which is issued through the Capital Investment Coordinating Board's online system), a business entity must obtain special rights from the Ministry of Energy and Mineral Resources (MEMR) to transport gas by pipeline within the stipulated transmission and distribution routes by way of tender. An environmental approval must also be obtained by preparing the relevant environmental document, which can be an environmental assessment or an environmental monitoring and environmental management report, depending on the length and pressure of the pipelines.
Cross-border deliveries of natural gas are subject to import or export approvals from the Ministry of Trade, which will take into account the import or export recommendation from the DGOG.
6.2 What requirements and restrictions apply to the construction and operation of transport and storage infrastructure?
Oil and gas pipelines may be constructed for upstream companies (by a service company) and operated by upstream companies as part of their production infrastructure or transportation activities, as an ancillary activity to their main activities under the production sharing contract (PSC) (but only after obtaining MEMR approval for the development plan). Oil and gas pipelines can also be constructed by downstream business entities that engage in and are licensed to carry out oil and gas transportation activities. A licence is not required if the gas transportation activities are ancillary to the downstream entity's main processing, storage or trading activities.
MEMR Regulation 32/2021 regarding Technical Inspection and Safety Checks of Installation and Equipment in Oil and Gas Business Activities requires a PSC contractor or a downstream business entity to ensure that the design, engineering, construction, operation, maintenance, testing, inspection and implementation of oil and gas installations and equipment, including pipelines, comply with applicable laws and regulations, technical standards acknowledged by the MEMR and good engineering practices. It also requires inspections and operability approval for such installations and equipment.
7 Environmental issues
7.1 What environmental authorisations are required to undertake oil and gas activities in your jurisdiction? Do these vary depending on the type or location of the activity?
In conducting petroleum activities, production sharing contract (PSC) contractors must comply with the provisions of occupational health and safety, environmental management and community development regulations. In the exploration phase, PSC contractors must complete an environmental monitoring and environmental management (UKL/UPL) report. During the exploitation of a proposed development, PSC contractors must further conduct an environmental assessment (AMDAL), which is subject to the relevant government authority's approval. PSC contractors are also required to make periodic reports to the relevant government authorities regarding their compliance with the UKL/UPL or AMDAL. In addition, Government Regulation 22/2021 regarding Environmental Protection and Management Implementation requires PSC contractors to obtain environmental approval from the Ministry of Environment and Forestry (MOEF) for any business and/or activity that has a significant or an insignificant environmental impact.
7.2 What environmental regulations or contractual obligations must the operator observe while oil and gas facilities are operational?
Government Regulation 17/1974 regarding Supervision of the Implementation of Offshore Oil and Gas Exploration prohibits operators from causing pollution to seawater, river water, the shore and air with, among other things:
- crude oil or its processing result;
- destructive gas;
- substances that contain toxins;
- radioactive materials;
- goods that are no longer used; or
- excess goods.
For the duration of the PSC, Ministry of Energy and Mineral Resources (MEMR) Regulation 02P/075/MPE/1992 regarding Guidelines for Supervision of Oil and Gas Exploration and Exploitation obliges operators to prevent the occurrence of environmental pollution in conducting their exploration and exploitation activities. Operators must also provide infrastructure to prevent and overcome environmental pollution, such as ponds or reservoirs to contain drilled mud, oil traps and other required tools. Operators must also form teams to assist in mitigating environmental pollution.
7.3 What environmental regulations or contractual obligations must the operator observe in relation to decommissioning?
Under the Oil and Gas Law and its implementing regulations, a PSC contractor must allocate funds for and carry out abandonment and site restoration (ASR) activities, such as:
- dismantling the equipment, installations and/or supporting facilities;
- permanently closing the wells;
- restoring locations; and
- handling the removal or disposal of equipment, installations and/or facilities carried out before or at the end of the PSC.
Under Working Guidelines 040/2018, the implementation of ASR activities must take into account:
- the relevant health, safety and environmental laws and regulations;
- good engineering practices;
- waste and/or B3 waste management;
- the prudential principle;
- cost effectiveness;
- the availability of technology, equipment and experts; and
- environmental restoration standards.
Additionally, MEMR Regulation 02P/1992 requires the reclamation of unutilised land.
7.4 What are the potential consequences of breach of these requirements – both for the operator itself and for directors, managers and employees?
The Oil and Gas Law and Law 32/2009 regarding Environmental Protection and Management, as amended by the Job Creation Law, subject business entities to imprisonment and fines should they fail to preserve environmental functions and cause environmental damage and/or pollution. Under Government Regulation 17/1974, operators or persons in charge that fail to prevent and mitigate pollution as required may be imprisoned for a maximum of six years and/or fined a maximum of IDR 1 million. Moreover, an operator that fails to obtain the required environmental approvals may be subject to administrative sanctions based on Government Regulation 22/2021.
7.5 Which national, provincial/state and/or local government regulatory bodies are responsible for enforcement of environmental obligations?
UKL/UPL reports are submitted to the MOEF or the regional government that issued the business licence. Prior to submission to the national, provincial or regency/city governmental authorities, the AMDAL will be evaluated and approved by the AMDAL Commission. If the PSC contractor is found to have violated environmental obligations, it may be subject to administrative sanctions under the Environmental Law.
7.6 What is the regulators' general approach in regulating the oil and gas sector from an environmental perspective?
Pursuant to the Environmental Law, environmental licences are issued by the MOEF, provincial or regency/city government, according to the type of licence. The Directorate General of Oil and Gas, the Special Task Force for Upstream Oil and Gas Business Activities and the Downstream Oil and Gas Regulatory Agency also have roles to ensure environmental management, such as prevention of pollution and damage.
8 Health and safety
8.1 What key health and safety requirements apply to oil and gas operators in your jurisdiction?
The health and safety requirements for oil and gas operators are regulated under:
- Law 1/1970 on Occupational Safety;
- the Oil and Gas Law; and
- their implementing regulations, including:
- Government Regulation 17/1974;
- Government Regulation 50/2012 regarding Implementation of Occupational Health and Safety System;
- Directorate General of Oil and Gas (DGOG) Decree 39 K/38/DJM/2002 regarding Guidelines and Procedures for Occupational Safety Inspections of Oil and Natural Gas Storage Tanks;
- Ministry of Manpower Regulation 5/2018 regarding Occupational Health and Safety in Working Area;
- MEMR Decree 1846/K/18/MEM/2018 of 2018 regarding Use of Standards in Oil and Gas Activities; and
- MEMR Regulation 32/2021 regarding Technical Inspection and Safety Checks of Installation and Equipment in Oil and Gas Business Activities.
Generally, the Law on Occupational Safety stipulates the general obligations of the workplace manager to protect workers from occupational hazards. Specifically in the upstream sector, Government Regulation 17/1974 stipulates that production sharing contract (PSC) contractors are responsible for:
- ensuring the correct use of installations;
- protecting workers from occupational hazards;
- implementing the best possible rescue and security measures;
- fulfilling occupational hygiene and health requirements; and
- adhering to labour provisions.
For upstream entities that employ at least 100 workers, Government Regulation 50/2012 obliges business actors to implement occupational health and safety policies within the relevant working area. Occupational health and safety guidelines for upstream entities that engage in the deployment, operation and maintenance of oil and gas pipelines can be found in MEMR Regulation 32/2021. In addition, Ministry of Manpower (MOM) Regulation 5/2018 provides that a business actor is obliged to fulfil its obligations to:
- exercise control over physical and chemical factors, and biological, ergonomic and psychological work factors,
- ensure cleanliness and hygiene in the workplace; and
- ensure that there are competent occupational safety officers in the workplace.
Under MEMR Decree 1846/2018, PSC contractors must also conform to the Indonesian National Standard and Indonesian National Work Competency Standards, to guarantee the safety of relevant installations and equipment.
8.2 Which national, provincial/state and/or local regulatory bodies are responsible for enforcement of health and safety regulations or obligations? What reporting requirements apply with regard to oil and gas accidents in your jurisdiction?
The DGOG, which is part of the MEMR, is responsible for supervising the implementation of health, safety and environmental regulations in the oil and gas sector, and imposing sanctions for non-compliance. The DGOG designates mining inspection enforcement teams to monitor work safety compliance in oil and gas businesses. If the facilities and techniques satisfy the work health and safety standards, the DGOG will issue certifications for installations and equipment. Non-compliance with applicable HSE rules subjects the company to penalties ranging from administrative sanctions up to revocation of a licence.
8.3 What are the potential consequences of breach of these requirements – both for the operator itself and for directors, managers and employees?
Depending on the violation, PSC contractors that fail to comply with occupational health and safety standards may be subject to the following sanctions:
- imprisonment (under the Law on Occupational Safety and Government Regulation 17/1974);
- fines (under the Law on Occupational Safety and Government Regulation 17/1974);
- sanctions determined by the relevant manpower office or MOM (Government Regulation 50/2012); and
- administrative sanctions such as:
- written warning;
- temporary cessation of activities; or
- revocation of a certificate of operation worthiness (MEMR Regulation 32/2021).
8.4 What best practices in relation to health and safety should operators consider adopting in your jurisdiction?
In addition to complying with local laws on occupational health and safety, operators should consider prioritising the local community and cooperating with regional governments to contribute to the area around the operation. Operators should also ensure that their employees meet the required standards of competency, which can be done by organising courses and development programmes for employees.
8.5 What is the regulators' general approach in regulating the oil and gas sector from a health and safety perspective?
The DGOG, the chairman of oil and gas inspection and oil and gas inspectors under the auspices of the MEMR are tasked with ensuring that operators comply with HSE standards in the oil and gas sector. Pursuant to MEMR Regulation 32/2021, inspections to ensure the safety of installations and equipment are carried out by oil and gas inspectors, and sanctions are imposed by the chairman of oil and gas inspection. The MOM and the local manpower office will oversee occupational safety and are responsible for imposing sanctions in case of violations.
9 Taxes and royalties
9.1 What national, provincial/state and/or local taxes, royalties and similar charges are levied on oil and gas operators in your jurisdiction? How are these calculated?
Taxes applicable to production sharing contracts (PSCs) include:
- income tax;
- value added tax (VAT);
- import duties;
- regional taxes; and
- other levies.
The PSC may stipulate whether:
- the tax laws and regulations applicable at the time of the PSC execution will apply throughout (stabilised); or
- the PSC will follow every tax law and regulation issued over time.
A flat rate of 22% income tax currently applies. Crude oil and natural gas are not subject to VAT, but PSC contractors may be still be charged VAT at a rate of 10% for the purchase of taxable goods and services. They may be reimbursed once the PSC enters production. PSC contractors may also be subject to a 20% branch profits tax, which is imposed on the income of a permanent establishment after tax. In addition, contractors must pay non-tax state revenues such as exploration and exploitation fees and bonuses, including a signing bonus and production bonus.
9.2 Are any tax incentives available for oil and gas operators?
Government Regulation 79/2010 (Article 26A) provides several tax incentives, including:
- an exemption from import duties on goods utilised in oil operations;
- an exemption from VAT and sales tax on luxury goods for the acquisition of certain taxable goods and/or services, imports of certain taxable goods and utilisation of certain intangible taxable goods from within and outside a customs area;
- an exemption from Article 22 income tax on imported goods that have obtained exemption facilities; and
- a 100% land and building tax deduction during the exploration stage.
9.3 What other strategies might oil and gas operators consider to mitigate their tax liabilities?
Indonesia's treaty network allows foreign PSC contractors to benefit from withholding tax rates and other forms of cross-border transaction relief if they meet the necessary requirements. The Ministry of Finance (MOF) also grants various tax facilities under various regulations.
9.4 Have there been any significant changes to the taxation rates applicable to oil and gas operators in the last three years?
In general, the income tax rate for the 2021 fiscal year is 22%. This rate will be reduced to 20% in 2022. The past few years have also seen developments in tax incentives, such as VAT and land and building tax facilities through MOF Regulation 122/PMK.03/2019 regarding Facilities on Value Added Tax and Sales Tax on Luxury Goods, Land and Building Tax, and Tax Treatment on Joint Facility Cost Sharing and Head Office Cost Allocation; and MOF Regulation 67/PMK.03/2020 of 2020 regarding Granting of VAT or VAT and Sales Tax on Luxury Goods, and Land and Building Tax Facilities for Upstream Oil and Gas Business Activity through Gross Split PSCs.
10.1 In which forums are oil and gas disputes typically heard in your jurisdiction?
In the upstream sector, the dispute resolution mechanism is stipulated in the production sharing contract (PSC). Pursuant to Special Task Force for Upstream Oil and Gas Business Activities Working Guidelines 7, as amended several times, disputes involving service providers to upstream businesses as well as the procurement thereof may be resolved in court or through arbitration held in Indonesia in accordance with the provisions of the contract.
In the event of a dispute between downstream business licence holders in relation to the implementation of gas transportation by pipeline, the Downstream Oil and Gas Regulatory Agency (BPH Migas) has the authority to intervene. If such intervention does not result in a settlement between the disputing parties, the dispute may be referred to a district court.
10.2 What issues do such disputes typically involve? How are they typically resolved?
Disputes in the upstream oil and gas sector in Indonesia may involve the following, among other things:
- disputes between the Indonesian government and a PSC contractors;
- disputes among holders of participating interests in a PSC; and
- disputes between PSC contractors and local communities or holders of overlapping rights in the relevant working area.
Such disputes may be resolved in an Indonesian court or through an arbitration body in Indonesia, depending on the dispute resolution mechanism stipulated in the relevant contract.
Disputes in the downstream oil and gas sector may involve disputes over the processing, transportation, storage and trading of oil and gas, among other things, between:
- downstream business licence holders; or
- the government and downstream business licence holders.
Under Government Regulation 36/2004, disputes between business licence holders may be resolved by BPH Migas. If the parties do not accept the resolution provided by BPH Migas, the dispute may be referred to the Central Jakarta District Court.
10.3 Have there been any recent cases of note?
We are aware of disputes involving PSC contractors, but the information on such cases is mostly confidential and not generally available. We are not aware of any recent noteworthy cases involving downstream business licence holders; but searches of court databases show that most downstream disputes involve criminal cases, such as those involving the illegal trading and distribution of oil and gas.
11 Trends and predictions
11.1 How would you describe the current oil and gas landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
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.
12 Tips and traps
12.1 What are your top tips for oil and gas operators in your jurisdiction and what potential sticking points would you highlight?
While Government Regulation 5/2021 provides clarity on certain provisions relating to the oil and gas sector under the Job Creation Law, it remains to be seen how the draft law which is currently being discussed by the government (see question 11.1) will boost investment in Indonesia's oil and gas sector.
To accelerate investment and production in the oil and gas sector, based on information from the SKK Migas website in 2021, SKK Migas and the government have implemented the following facilities for oil and gas investors:
- postponement of abandonment and site restoration reserves;
- exemption of liquefied natural gas from value added tax;
- write-off of rent for the lease of state assets used for oil and gas upstream activities;
- implementation of discounted gas prices for sale volume above take or pay and daily contract quantity; and
- implementation of investment incentives such as:
- accelerated depreciation;
- temporary split adjustments (eg, sliding scale); and
- the full Indonesian Crude Price for domestic market obligation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.