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  New Oil and Gas Law
           A new law governing the upstream and downstream oil and gas industry in Indonesia (hereafter referred to as the "November 2001 Law") has been signed on 22 November 2001 by the President of Indonesia (Megawati Sukarnoputri), while The House of Representatives approved the law in a plenary session held on 23 October 2001. The new law is more of a framework document than a specific legislation. More a specific regulations are to be implemented at a later date. Therefore, at the time of writing no changes have occurred to the fiscal terms.
        The features of the November 2001 Law are:
  • Pertamina will be removed as the country's oil and gas administrator, state partner and negotiator, to be replaced by a state of Implementing Body, to be called as the BADAN PELAKSANA HULU, abbreviated as BALAK, or BPH, the Upstream Implementing Body.
  • Within two years from the date of the implementation of the new law, Pertamina shall be converted into a "Persero" through government regulation. In its new form, Pertamina will sign Cooperation Contracts with the Implementing Body to allow it to explore for and produce hydrocarbons.
  • Previous legislation, namely Law No. 44, Law No. 8 and Law No. 15, (and amendments) become null and void (except to the extent that they contain regulations which are not contrary to the November 2001 Law and have not been replaced by new regulations introduced under that law).
  • All existing contracts will be honoured until expiration of the contract.
  • Domestic Market Obligation (DMO) to be based solely on 25% of the contractor's First Tranche Petroleum plus Profit Oil (compared to the lesser of the "25% rule" and the total domestic consumption of crude oil in Indonesia divided by the total domestic production of crude oil in Indonesia). DMO is also to apply to gas as well as to oil (previously only oil was subject to DMO).
  • The total contract period is 30 years under Cooperation Contracts, including the exploration period. Companies can apply for this to be extended by 20 years. Therefore, the maximum contract length under the new law is 50 years, whereas previously the maximum contract period is 30 years.
  • Broad based environmental terms are expressed within the actual oil and gas legislation.
  • Regulations under previous legislation will continue to prevail until regulations under the November 2001 Law are implemented.

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Last Update: 8 August 2002