Client Newsflash

Constitutional Court Disbanded BP MIGAS

On November 13, 2012, the Constitutional Court issued a judgment partially-granting a judicial review on Law No. 22 of 2001 concerning Oil and Natural Gas (the “Oil & Gas Law”) filed by 30 individuals and 12 community organizations, which judgment disbands BP Migas (the Implementing Body of Upstream Oil and Gas Activities).

Under the Oil & Gas Law the role of BP Migas was as follows:

a. to provide advice to the Minister of Energy and Mineral Resources (the “MEMR”) with regard to the preparation and offering of work areas and cooperation contracts (Kontrak Kerja Sama);
b. to act as a party to the cooperation contracts;
c. to assess plans of development that are to produce for the first time in a given work area and submit such assessment results to the MEMR in order to obtain the MEMR’s approval;
d. to approve plans of development (other than those mentioned in point c above);
e. to approve work plans and budget;
f. to report to the MEMR on the implementation of the cooperation contracts; and
g. to appoint the seller of the State’s portion of the oil and/or natural gas to the State’s best advantages.

The Constitutional Court held that the role of BP Migas caused limited access for the State to maximize the benefits of natural resources management for people’s welfare as stipulated in Article 33 of the 1945 Constitution. The Court found that BP Migas did not directly manage oil and gas and instead handed it over to state-owned companies or private companies through cooperation contracts. Consequently, the Constitutional Court held that the existence of BP Migas was unconstitutional and did not have legal grounds because it had degraded state control over natural resources.

All articles related to BP Migas in the Oil & Gas Law, including Article 1(23), Article 4(3), Article 41(2), Article 44, Article 45, Article 48(1), Article 59(a), Article 61 and Article 63, were considered to violate the 1945 Constitution so therefore were revoked.

As a consequence of the judgment, BP Migas is disbanded. The Constitutional Court declared that BP Migas’ duties and authorities are implemented by the related Ministry (i.e., the MEMR) until the issuance of the new law. M-00235 2 We note that one Constitutional Court judge dissented the views of the other judges and held that BP Migas was lawful.

In response to the judgment, the Ministry of Economic Affairs, the MEMR and related Ministries, as we understand it, are going to form an Implementing Unit of Upstream Oil and Gas Activities to assume BP Migas role based on a Presidential Decree to be issue in the near future.

ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA

November 14, 2012


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