New provision for oil and gas export

Registered Exporter 

Minster of Trade   (MoT) has issued a new regulation number 03/M-DAG/PER/1/2015  to tighten oil and gas export on 5^th Jan 2015 to be effective from 7^th April 2015.  Exporters should be registered as Registered Exporter (Eksportir Terdaftar)  and will be subject to verification by an independent surveyor for obtaining export/import permits.

LC requirement 

MoT has  also issued a new regulation number 04/M-DAG/PER/1/2015 ("MoT-4")   regarding Letter of Credit (LC) As Payment Method for Export of Certain Product (including oil and gas). This MoT is issued on 5^th Jan 2015 to be effective from 7^th April 2015.

The objective of this new regulation is not so clear.  In the consideration  section of MoT-4 provides that this MoT is to support conservation of natural resources and to encourage optimization  and accuracy of the export proceeds.  So, if MoT  concerned  is about  payment, there are provisions in the LNG Sales and Purchase Agreement  to protect and guarantee  Seller  payment. On the other hand, if MOT is concerned  about  pricing,  ESDM / Ministry of Energy and Mineral Resources  will verify and approve the pricing anyways. Currently, considerations of MoT-4 have been achieved under existing payment terms, arrangements  and reporting requirements.

From commercial perspective, complying with the MoT-4 will require amendment of existing contract and it will take a long time to negotiate.  Currently, gas export is generally covered by long term contract (approved by SKK MIGAS) and buyers have good credit rating (reputable buyers) which has had no problem/default.  Renegotiation of contract might be  unlikely to be accepted by the buyers due to additional cost to buyers and  it may open other  terms and conditions to be revisited.

Failure to comply with MoT-4 has impact to the issuance of export permits  and it will result in reduction of oil and gas production because of reduction in export.  It might be potential impact in technical (maintaining flow of oil/gas) or other aspects as well.

  

Oil and gas industry individually or collectively  through IPA (Indonesia Petroleum Association)  is trying to seek  exemption of the LC requirement for oil/gas exports considering the uniqueness of oil and gas business.   

Exemption 

At first, MoT only accommodate oil & gas industry concerned through postponement mechanism by issuing MoT Regulation 26/M-DAG/PE/3/2015.  (see "Postponement of LC requirement"). By that mechanism, PSC contractors need to file request for postponement in quarterly basis.

Finally after long and intensive discussion, the new Minister of Trade, Thomas Lembong,  issued MoT Reg. No 67/M-DAG/PER/8/2015    ("MoT-67")  that amend MoT-4.  In the MoT-67, Government  admit the uniqueness of  upstream oil and gas  industry   and exempt the industry in applying LC for export. This regulation come to effective on 31 Aug 2015.