JAKARTA: Despite the government having prepared the implementing regulation on Government Regulation No.79/2010 regarding cost recovery, the GR is still unworkable because it is fundamentally contrary to the prevailing law. The Indonesian Petroleum Association (IPA) Attorney Todung Mulya Lubis said that basically there should be no rules which conflict with its higher regulations.
He said that even though there is an implementing regulation for the afore mentioned GR, there will be no significant improvement as the GR itself has deviated from its higher regulations.
"GR 79 contradicts several superior laws and regulations such as the Oil and Gas Law, the Income Tax Act Law, Civil Code and Law No.10/2004 on the Formation of Laws and Regulations," he said today.
Mulya said that following detailed analysis and due to the above-mentioned reasons, the IPA then filed a judicial review on GR No.79/2010 on Recoverable Operating Costs and Income Tax Treatment in the Upstream Oil and Gas Business Sector.
For the sake of consistency of the legislation, the judicial review had to be instigated and following due consideration became the only course of action that was available to the IPA. "We have already filed the petition to the Supreme Court on June 16, 2011. There are 22 items [in 20 articles] that we request the Supreme Court to review and the process will now commence, potentially lasting for two months, but it could be as long as 6 months", he said.
According to him, the IPA will definitely be faced at a later stage with a process in which the government has the right to respond to this judicial review. If the government can recognize the urgency and impact of this GR and immediately respond, the Supreme Court can give a priority to proceed with the paperwork.
Relating to the GR, the IPA asks that the Supreme Court review in particular Article 38b that reads that items that are not yet regulated or not regulated strictly enough in the PSC such as the amount of state revenues, unrecoverable operating costs and six other items should be adjusted in this GR within a maximum period of 3 months.
According to Todung, in Article 38a , the government does indeed recognize the sanctity of existing contracts. However, Article 38b requires adjustment as the content of this Article could negate the fundamental principals of article 38a and the sanctity of the contract itself. He added, "The contract can be changed , but any amendment of the contract is possible only following the mutual consent of both parties. Article 38b will change the terms of the PSC," he said.
The Vice President of the IPA , Sammy Hamzah , said that the IPA continues to communicate with the Ministry of Energy and Mineral Resources and BPMIGAS on a regular basis to seek out a mutually agreeable solution to this problem. But he also understands that the Ministry of Energy cannot decide this by themselves as the GR on Cost recovery is also associated with oil and gas revenues which is the responsibility of the Ministry of Finance.
"We understand that determining and clarifying the GR is not just a responsibility of the Ministry of Energy and Mineral Resources, but also comes under the authority of the Ministry of Finance because it is closely related to fiscal issues and government budgets . It is therefore that this issue is still in discussion amongst the respective government agencies," he said.
The IPA previously forecast that the implementation of GR No.79/2010 on cost recovery could reduce investments in the oil and gas sector by 20% and could result in a decrease in oil and gas production of 150,000 barrels of oil equivalent per day (BOEPD). (MMH)