Legal Guide to Oil and Gas Regulation in Indonesia: Transportation

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This is the third post in our 2013 Legal Guide to Oil and Gas Regulation in Indonesia. Fitriana Mahiddin and Syahdan Z. Aziz will address a new topic each week.

Transportation

While private companies may own and operate pipelines and storage facilities, the Minister of Energy and Mineral Resources and BPH Migas will determine how those downstream activities are organized and conducted. With regard to the transportation of natural gas, the Minister is charged with developing a national gas transmission and distribution network master plan.

BPH Migas may conduct auctions of special rights to transport natural gas by pipeline in certain regions based on the master plan and to stipulate what should be paid for the rights granted. These rights are limited to a certain pipeline network. BPH Migas may also regulate the through pipelines and distribution of natural gas; stipulate the joint use of transportation, distribution and storage facilities; determine the obligations of private entities engaging in downstream activities where market mechanisms are not functioning; in remote areas, set tariffs for pipeline use; and set the price of natural gas for households and small-scale consumers.

Companies engaging in the transportation of natural gas through pipelines or by trading natural gas must pay a defined contribution or toll to BPH Migas, based on volumes transported or sold. The contribution is for BPH Migas’s working plan and budgetary purposes.

Authorizations and Land Rights

Generally, a specific business license is required from the Minister. Specifically, to transport natural gas through pipelines, the authorized entity must also obtain special rights for such pipeline from BPH Migas. Construction and operation of these facilities will be subject to the regional, provincial and national regulations generally applicable to the construction and operation of industrial facilities. The pipeline operator is also required to prepare an Environmental License.

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 co-operation contract, the contractor will have to comply with Law 22, 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.

Transportation Pipelines

Under Law 22, as stated above, the Minister will establish the master plan and, given its general authority over the transmission and distribution of oil and natural gas, determine joint use of transportation systems and intervene in pipeline operator disputes. BPH Migas is given the authority to determine questions of access to oil and natural gas transportation systems and interconnection of, and cooperation between, pipeline systems. A holder of a license from the Minister and the special rights (the operator of a gas pipeline) must allow third-party access to its natural gas transportation and storage facilities under the supervision of BPH Migas.

The Minister has stipulated a master plan for an integrated transmission and distribution network for natural gas under Minister Decree No. 2700/K/II/MEM/2012. With regard to the distribution of oil, the government only regulates the availability and distribution of certain types of fuel oil.

A pipeline or storage facility operator cannot be required to expand its facilities to accommodate new customers. While expansion may not be mandated directly, given that development plans for natural gas requires the approval of the Minister (previously BP Migas) and the operation of pipelines is regulated by BPH Migas, it is conceivable that either might require a contractor or pipeline operator to develop facilities in excess of their needs. BPH Migas could then use its authority to compel such excess to be shared, especially given the law’s stated objective of ensuring sufficient natural gas is available to meet domestic demand.

With regard to facilities and transportation in the oil sector, as mentioned in question 6.5, there is only a specific regulation regarding the distribution of certain types of fuel oil.

Terms for Transportation

In general, and subject to BPH Migas’s authority to set the tariffs for 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 stipulate and supervise the tariff for the transportation of natural gas through pipelines that will be charged by the operator of the pipeline to the users. The relevant 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 the operator and the user of gas pipelines must be set forth in a gas transportation agreement. BPH Migas must approve the tariff to be stipulated in the agreement. The regulation also requires the operator of the gas to prepare an access arrangement outlining the terms and conditions for the joint use of the pipelines owned by the operator. This must also 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.

With regard to the oil industry, there are no general requirements or regulations on the tariff and transportation of oil. However, as mentioned earlier, the government issues regulations on the market mechanisms for the distribution, pricing and availability of fuel oil.

This article appeared in the 2013 edition of The International Comparative Legal Guide to: Oil & Gas Regulation, published by Global Legal Group Ltd., London.

For Part One and Two of our series, see:

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