EMR Ministry to issue PI Regulation for the Local Government

KATADATA - The Energy and Mineral Resources (EMR) Ministry will soon issue ministerial regulation regarding a local government’s participating interest (PI) in an oil and gas block under it. 

The ministry’s director for upstream oil and gas business development Djoko Siswanto said his side is preparing the ministerial draft law regarding the 10 percent PI that local government will get. “Hopefully it will be issued in one to two weeks time,” Djoko added.

KPK (Corruption Eradication Commission) has also sent a recommendation to the President on December 16^th 2015. In the letter, KPK wishes President Joko (Jokowi) Widodo to revise the Government Regulation (PP) No. 35/2004 about the upstream oil and gas business activities, especially Article 34 and 35 about the PI for regional-owned enterprises.

KPK considers the PI regulation in PP No. 35/2004 can harm the local government. There are two consequences that the local-owned firms must bear in order to get the PI in an oil and gas block. The firm must replace 10 percent of operational cost for oil and gas blocks. 

And in the letter, KPK also suggested two options to revise the rules for this PI. First, the government is using the formula of 10 percent divided by the profit for local government, which receives it through the local-owned companies. But, the firms would not finance the whole operational activities. 

Second, the government will provide the funds for the local government, along with the local firms, to help the investments. The help from the central government can be in the form of loans from banks, state-owned firms, or funding and investments directly from the central government’s institutions. 

However, the suggestion to revise PP 35/2004 is challenged by the EMR Ministry. In Djoko’s opinion, to accommodate the suggestion regarding the PI regulation, there is no need to revise the PP. This can be done through the Ministerial Regulation that will be issued soon. 

The ministerial regulation will also focus on the management of PU, especially about the mechanism of the funding. The first option that KPK suggested may be difficult to be implemented. “But it looks like the second option is the best solution, so that there will be synergy between state-owned firms and local-owned companies. If private-owned firms want to participate, they can directly contact the contractors of the cooperation contract (KKKS) in a business-to-business manner.