Indonesian legislators end Pertamina monopoly with new law

By the OGJ Online Staff

HOUSTON, Oct. 24 -- The Indonesian House of Representatives passed an oil and natural gas law Tuesday, preparing the way for full liberalization of the country's energy sector and ending the monopoly of the state oil corporation, Pertamina.

The law effectively ends Pertamina's regulatory and contract-approval roles along with its management of foreign oil and gas contracts, officials said.

Instead, the Indonesian government plans within a year to set up a new executive body to manage such activities and a separate entity to oversee domestic fuel supplies and distribution.

That plan calls for Pertamina to be turned into a limited liability company within 2 years.

However, officials said, Pertamina would continue to supply fuel in the domestic market for 4 years as part of the transition period to deregulate downstream operations.

The law also provides for other contractual arrangements for investors, as long as it is beneficial to the country and maintains the present production contract system.

According to Indonesian media reports, it also allows contractors the choice of paying taxes based on existing rules or to apply the tax policy that was in force when they signed their respective agreements.

At a Houston energy conference last month, Indonesian President Megawati Soekarnoputri said Indonesia would soon issue regulations to facilitate private sector participation in power generation, thermal energy, and energy exploration (OGJ Online, Sept. 24, 2001).

Elimination of Pertamina's monopoly has been a long process, however. Indonesian lawmakers tabled similar legislation in 2000 and in 1999 (OGJ Online, Nov. 10, 2000).