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Indonesia energy ministry drafting ruling on 10% working interest for BUMDs

JAKARTA ( – The Energy and Mineral Resources Ministry (ESDM) is currently drafting a regulation that will govern the 10 percent oil and gas block working interest to be offered to local-government owned companies (BUMDs).

The ruling was aimed to ensure that the working interest will not be transferred to other parties, instead, the working interest allocated to local governments truly benefits the local government and local economy. The planned new regulation requires the local-government owned company, BUMD, to have the financial capability to purchase the 10 percent interest set aside for the BUMDs.

In the event that, the local government owned company is not able to fund the purchase, the company can cooperate with the Center of Government Investment (Pusat Investasi Pemerintah/PIP), an investment arm of the Indonesian government, or State owned company (BUMN).

“We want to give the regions to own minority working interest of 10 percent for onshore oil and gas blocks, however for offshore blocks that are 12 miles from coast line will be the authority of the (central) government to determine,” the energy minister Sudirman Said told a press conference.

Under the draft ruling, the 10-percent interest is offered to BUMDs, after the first stage of planned of development (POD) is approved by the energy ministry.

The minister called on local governments to guard its interest so that it will not be handed over to other parties. The local government may not use the interest as collateral to get funds. “The spirit of the regulation is to prevent rent-seekers join in,” Minister Sudirman said.

In addition, the 10 percent working interest must be approved by the energy ministry after taking into account the considerations presented by the Indonesian Special Task Force for Upstream Oil and Gas Business (SKK Migas).

The regulation will certainly affect the much-debated 10-percent working interest of Mahakam Block which is expected to be offered to East Kalimantan local governments – provincial and regency governments. Recently, the East Kalimantan local governments have said it will tie up with private investors in finance the stake purchase, or setting up a joint venture firm to own the 10-percent interest in Mahakam block. This will also apply to 10 percent working interest of Masela Block in Arafura Sea that will be offered to local governments in Maluku.

Following is the eight important points of the draft ruling:

1.The BUMD that receives the offer of 10 percent working interest is established based on regional government regulation (Perda).
2. The 10 percent working interest is offered after the approval of POD I.
3. The criteria about the eligibility of local governments to receive the 10 percent working interest (with respect to the local governments’ authority over 0-4 nautical miles offshore).
4. The BUMD must have the financial ability to fund the purchase of 10 percent working interest and the subsequent operations.
5. The BUMD can cooperate with the Government Investment Center (PIP) or State Owned Companies.
6. The statement of interest and financial ability must be submitted by the BUMD within 60 calendar days after the first offer was made by the contractor. If there is no expression of interest by the BUMD, the working interest offered  to the BUMD is closed and the working interest will be offered to other state owned companies appointed by the energy minister.
7. The transfer of 10 percent working interest shall be approved by the Minister after taking into considerations of SKK Migas.
8. The Working Areas that are located over 12 miles offshore is the authority of the (central) government . (*)

Written by Rambu Energy Staff Writer

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