Oil and Gas Transportation and Infrastructure in Indonesia

Legal Updates
Oil and Gas Transportation and Infrastructure in Indonesia
5 July 2017

By Fitriana Mahiddin and Syahdan Z. Aziz

Gas transportation by pipeline in Indonesia is regulated under Government Regulation No. 36 of 2004 regarding Upstream Oil and Natural Gas Business Activities, as has been amended by Government Regulation No. 30 of 2009 (GR 36) and Ministry of Energy and Mineral Resources (MEMR) Regulation No. 19 of 2009 regarding Natural Gas Business through Pipelines, and is controlled by the Downstream Oil and Gas Regulatory Agency (BPH Migas).

It can only be carried out by a business entity established in Indonesia that has obtained a transportation license from the MEMR, unless such transportation is a continuation of the upstream activities of a Production Sharing Contract (PSC) Contractor.

The MEMR, as mandated by the Oil and Gas Law (Law No. 22 of 2001 regarding Oil and Gas), has established a transportation master plan. This master plan is relied upon by BPH Migas to, inter alia, determine transmission routes and distribution networks, tender Special Rights, and to determine tariffs in accordance with techno-economic principles.

Governmental Authorizations

In addition to a gas transportation license from the MEMR, a business entity must also obtain Special Rights from the MEMR to transport gas by pipeline within the stipulated transmission and distribution routes by way of tender. An environmental license must also be obtained by preparing the relevant environmental document, which can be an Environmental Impact Analysis (AMDAL) or Environmental Management and Monitoring Efforts (UKL/UPL), depending on the length and pressure of the pipelines.

Land Rights to Construct Pipelines and Infrastructure

Generally speaking, land rights will be obtained by negotiating with owners and occupiers, in accordance with prevailing laws. To the extent these facilities are used for upstream activities within the framework of a cooperation contract, the Contractor will have to comply with the Oil and Gas Law,

Government Regulation No. 35 of 2004 regarding Upstream Oil and Natural Gas Business Activities as has been amended several times, the latest by Government Regulation No. 55 of 2009 (GR 35), and the relevant implementing regulations to be issued thereunder. Contractors are responsible for the payment of these rights. Land that is purchased for a facility will become the property of the state, while land that is leased for a facility will be leased in the name of the Contractor.

Title to land purchased for facilities used for downstream activities outside of a cooperation contract may be held in the name of the business entity engaging in the transportation or storage activity. Projects that serve the public interest may enjoy more Government involvement in the land procurement process, as stipulated in Presidential Regulation No. 71/2012 as has been amended several times, lastly by Presidential Regulation No. 148/2015. The President has also issued a regulation and an instruction to enhance cooperation among governmental entities in smoothing the preparation and operation of nationally strategic projects.

Access to Pipelines and Storage Facilities

Access to oil and natural gas transportation pipelines and associated infrastructure is organized by BPH Migas by relying upon the transportation master plan stipulated by the MEMR. A pipeline or storage facility operator cannot be required to expand its facilities to accommodate new customers.

Facility sharing is obligated by GR 36 only to the extent the relevant facility has sufficient capacity so that the facility sharing will not impair the operations of the facility owner. Facility sharing is also subject to economic considerations, such as the facility owner's investment return rate. BPH Migas is the authority that oversees and regulates facility sharing.

Setting Terms for Oil/Gas Transportation

In general, and subject to BPH Migas' authority to set tariffs for the transportation of natural gas through pipelines, parties may agree on the terms of the agreement for the transportation and storage of natural gas. A contractual regime is in its early stages of evolution.

BPH Migas has the authority to determine and supervise the tariffs for natural gas transportation through pipelines that will be charged by the operator of the pipeline to the users. The relevant operator must submit the proposed tariff to BPH Migas. BPH Migas will then verify and evaluate the proposed tariff.

BPH Migas will discuss with the related pipeline operator and the users before determining the tariff. For the transportation of natural gas, the applicable regulation provides that the agreement between a gas pipeline operator and user must be set forth in a gas transportation agreement. The regulation also requires the operator of the gas pipeline to prepare an access arrangement outlining the terms and conditions for the joint use of the pipelines owned by the operator. This, as well as the tariff, must be approved by BPH Migas.

The access arrangement will include management guidelines and technical and legal rules. The gas transportation agreement must be in accordance with the access arrangement. Crude oil transportation is not subject to the Government's approval, whereas fuel oil is relatively more heavily regulated in terms of distribution, pricing and availability.

This is an excerpt from the Indonesia chapter of International Comparative Legal Guide to: Oil & Gas Regulation 2017. This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user's own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

This article was first published in International Comparative Legal Guide to: Oil & Gas Regulation 2017, published by Global Legal Group. For further information, please visit www.glgroup.co.uk.

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