MEMR 30, Granting access for PERTAMINA

In previous article, the Government has issued MEMR Regulation No. 15 Year 2016  (“MEMR-15”) that gives privilege to PERTAMINA to acquire expiring PSC Block (see  New Regulation for expiring Production Sharing Contract/PSC).

 In Article 27 of MEMR-15, it is stated that PERTAMINA or new bidder  who has signed  new  Cooperation Contract  before termination of an expiring PSC may undertake preparatory activities for transfer of operatorship after receiving  approval from SKKMIGAS, at least for below activities  :

• Apply for approval  of Work Program & Budget to SKKMIGAS for activities to be implemented after the effective date of new PSC
• Start the procurement process for goods and services  required  for the operation after the effective date of new PSC.
• Apply for approval/permit required to support the operation after the effective date of new PSC.

In MEMR-15, it does not provide details of  the  mechanism for transferring operatorship for producing block.  It seems that PERTAMINA's  preparatory activities are separated/isolated from the activities of existing operator of an expiring PSC.

Handover of producing block requires transfer of knowledge in order to maintain production level. Ongoing exploration activities for finding new wells also need to be continued in order to maintain production in the future. It is not like  selling  a manufacturing  company  where the previous owner (transferror) may shutdown the factory and the new owner (transferree)  will start it over again.

Shutting down a producing well in upstream oil and gas might be a nightmare.  It will need significant effort and  significant cost to pump back the oil  to the previous production  level.

It is also difficult  for PERTAMINA’s personnel  to instantly take over operation from personnel of  the expired PSC  on the effective date of the new PSC, because technology applied by previous Contractor may be different with technology known by PERTAMINA.

Not only production, others matter also need transition period such as Finance.  PERTAMINA and the expiring PSC Contractors might have different software system for maintaining books and record. Alignment of the different software is needed so that on the effective date of new PSC, all financial records can be transferred smoothly and completely  from previous Contractor to PERTAMINA. The alignment would be never happened if PERTAMINA does not have any access to the activities of the expiring PSC. A lthough it is stated in Article 21 that Contractor of  expiring PSC should cooperate with PERTAMINA to undertake preparatory activities in connection with transferring of operatorship, there is no further elaboration in MEMR-15 concerning the  mechanism or guideline.

Access to the operation of expiring PSC

Recently Minister of Energy and Mineral Resources (MEMR) has issued MEMR  Reg. No 30 Year 2016 (“MEMR-30”) to respond above concerns.  In the consideration part of MEMR-30, it is stated that in intention of MEMR 30 are :

• To maintain production levels of oil and gas
• To  give assurance in the implementation in upstream oil and gas activities during the transfer of management in an expiring work area/PSC.

Below is the highlight of provisions in MEMR 30:

1.       in order to maintain the Oil and Gas production level in the Work Area, PT Pertamina (Persero) or the bid winner may perform financing of operational activities required prior to the effective date of the new PSC.

2.       The implementation of operational activities through financing shall be performed by the previous Contractor.

3.       SKK Migas  will prepare implementation guidelines for financing and operations as stipulated above which shall cover at least:

1. The scheme of implementation of activities (financing and operational);
2. Mechanism for work program and budget submission;
3. Mechanism for recovery of operational costs;
4. Asset management;
5. Liabilities for operational activities; and0
6. Oil and/or Gas production sales plan.

4.       PT Pertamina (Persero) or the bid winner shall make an agreement with the previous Contractor related to financing and implementation of operational activities with reference to the guidelines issued by SKK MIGAS

5.       All expenses incurred by PT Pertamina (Persero) or the new Contractor in order to make preparation for transferring of operatorship  and financing of operational activities can be recovered under the new PSC.


     Some PSCs will expire soon  as shown in below table and they are waiting for guideline issued by SK KMIGAS as mandated by MEMR-30.   Just recently SKK MIGAS has issued guideline for Mahakam PSC whose contract will be terminated in the end of 2017 and PERTAMINA will become the new Contractor/operator. It seems that Mahakam block will become pilot project for SKKMIGAS in addressing an expiring PSC which would then be operated by  PERTAMINA or new bidder.

Sumber : http://www.kompasiana.com/ujangkosim/mendongkrak-gairah-industri-hulu-migas-di-indonesia_57dd4f7a0e9373686e8ef29e

     With reference to the guideline  issued by SKK MIGAS, PERTAMINA and the Contractors of expiring PSC will make an agreement among them related to financing and operational activities. By signing such agreement, PERTAMINA (or new bidder) will have  access to the operational and financing activities and it is expected that transfer of operatorship will be run smooth and production can be maintained sustainable.

Possible tax issues

Land and Building Tax (“LBT”)  is one of possible issue in this matter. Assuming  the block will be expired at the end of 2017,  PERTAMINA as the new Contractor (in 2018) has to pay LBT in significant amount in fiscal year 2018. Why?   because LBT is imposed based on condition 1^st  January 2018 and the tax base is calculated based on revenue in 2017 multiplied by capitalization value.  It will be unfair to the PERTAMINA in the event that the lifting in 2018 decrease significantly while PERTAMINA already paid LBT based on 2017 lifting.  Another approach that might be more fair is LBT for 2018 will be imposed based on 2018 forecast of lifting.  By using forecast, the LBT paid in 2018 will be closed to actual reality. This issue has been raised to tax office and they are still discussing internally.