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The government is currently revising the 2001 Oil and Gas Law
so as to encourage increased allocations of locally produced oil and
gas for the domestic market, chief economics minister Boediono says.
In a written statement sent to the Regional Representatives Council
(DPD), Coordinating Minister for the Economy Boediono said that one of
the envisaged amendments to the law would affect article 22, which
governs the domestic use of the country's oil and gas.
"Article 22, which imposes a 25 percent ceiling on the consumption of
locally produced oil and gas will be amended so as to increase this
percentage," Boediono explained.
He said that instead of imposing a ceiling, the amended law would
require the country's oil and gas producers to allocate at least 25
percent of their production to the domestic market.
Boediono said that in order to meet the country's surging gas demand,
the government would also take steps to ensure that locally produced
natural gas could be optimally used, particularly as regards satisfying
the demand from state-owned power firm PLN and industry.
However, he gave assurances that the government would honor all
existing oil and gas production-sharing contracts, despite the proposed
amendment of the 2001 legislation.
In the written statement, Boediono also said that the government was
preparing a plan that would balance the country's proven gas deposits
with long-term demand so as to ensure the security of domestic gas
supplies, and help in determining prices.
Boediono's written statement was submitted in response to DPD criticism
that the current legislative framework failed to prioritize the use of
natural gas for local consumption.
The 25 percent ceiling imposed by the 2001 law has resulted in the
country's oil and gas producers exporting most of their output.
As a consequence, a number of industrial consumers have collapsed due
to the lack of cheap gas supplies, as in the case of PT Asean Aceh
Fertilizer.
Besides the Oil and Gas Law, the government is also in the process of
revising the 1967 Mining Law. One of the proposed amendments would
transfer the power to issue mining permits to local administrations.
Major overseas-based mining firms strongly oppose the change, arguing
that it would lead to a lack of legal certainty for investors, given
their experiences to date in dealing with the regions.
"What if the mayor or regent is replaced. Who will then guarantee our
licenses?" Indonesian Mining Association (IMA) vice chairman Darma
Ambiar asked late last month.
"It would be better if the central government remained in charge,"
Darma said.
The IMA hopes that in addition to retaining licensing powers, the
central government will also annul all local ordinances deemed inimical
to investment.
Since November 2006, the central government has annulled 506
ordinances, revised 148, and is currently planning to annul another
804, most of which impose local taxes and charges that conflict with
higher regulations.
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