Draft Oil and Gas Law Overhauls Upstream Institutional Framework

The House of Representatives of the Republic of Indonesia (“DPR”), through a Draft Bill on the Amendment to Law No. 22 of 2021 on Oil and Gas (“Migas”), as amended by Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (collectively referred to as “Law 22/2021”), is promoting institutional reform in the upstream oil and gas sector. One of the key initiatives is the establishment of a Special Business Entity (“BUK”) for Migas and the introduction of a Petroleum Fund mechanism as its main pillars.

“In exercising control and management over the upstream oil and gas sector, the state needs to appoint a special business entity,” said Deputy Chair of Commission XII of the DPR, Sugeng Suparwoto.

Unlike the Special Task Force for Oil and Gas Activities (“SKK Migas”), the BUK Migas will not only function as a regulator but also as the holder of Mining Business Authority, carrying out all upstream business activities. The Draft Bill also stipulates that the rights, obligations, and legal consequences of contracts previously under SKK Migas will automatically transfer to the BUK once the entity is established.

Meanwhile, the Petroleum Fund mechanism will be jointly managed by the Minister in Migas sector, the Minister of Finance, and BUK Migas. The sources of funding are derived from a percentage of non-tax state revenue (“PNBP”) of oil and gas, bonuses attributable to BUK Migas, as well as other levies or contributions that are the right of the state.

The fund will be used to finance exploration activities, including in open areas, infrastructure development, as well as research and development (R&D). The Petroleum Fund may also be utilized to support environmentally friendly oil and gas activities.