Govt. Issues Regulation Prioritizing the Utilization of Domestic Petroleum in Order to Meet Domestic Need

With the ultimate goal in mind of optimizing the utilization of petroleum in order to meet domestic need, as well as improving national energy security, the Minister of Energy and Mineral Resources (“ Minister ”) has issued Regulation No. 42 of 2018 on Priority Petroleum Utilization for the Fulfillment of Domestic Need (“ Regulation 42/2018 ”).In order to accomplish the abovementioned goals, Regulation 42/2018 sets out a number of new obligations which have to be met by the state-owned oil-and-gas company, PT Pertamina, as well as by petroleum processing license holders (“ Petroleum Businesses ”).Prioritization of Domestic Petroleum UtilizationRegulation 42/2018 specifically requires PT Pertamina and Petroleum Businesses to prioritize the utilization of domestic petroleum and condensate (“ Petroleum ”) and to search for supplies of Petroleum from domestic Petroleum contractors (“ Contractors ”) prior to engaging in any imports. [1] With this outcome in mind, Contractors or their affiliates are required to offer Contractors’ share of Petroleum to PT Pertamina and/or Petroleum Businesses at least three months prior to the start of any export recommendation period for all Petroleum volumes which are owned by Contractors. [2] Based on offers from Contractors, PT Pertamina and/or Petroleum Businesses are required to undertake negotiations relating to the purchase of Contractors’ share of Petroleum on an “arm’s length” basis (secara kelaziman bisnis). [3] Based on the results of said negotiations, PT Pertamina is authorized to directly appoint Contractors for the purchase of Petroleum through long-term contracts for a 12-month period after any successful negotiation. [4] Technical provisions regarding to the implementation of Regulation 42/2018 are to be further determined by the Directorate General of Oil and Gas at the Ministry of Energy and Mineral Resources (“ Directorate-General ”) and by the Special Taskforce for Upstream Oil-and-Gas Business Activity (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi/SKK Migas) based on their relevant authorities. [5] Reporting ObligationIt is important to note that the results of any negotiation process, as mentioned above, must be reported to the Directorate-General. [6] Regulation 42/2018 has been in force since 6 September 2018.PG [1] Arts. 2 and 7, Regulation 42/2018. [2] Arts. 3 and 4 (1), Regulation 42/2018. [3] Art. 4 (2), Regulation 42/2018. [4] Art. 5, Regulation 42/2018. [5] Art. 8, Regulation 42/2018. [6] Art. 6, Regulation 42/2018.