Should Jokowi Reform the Oil and Gas Governance?

By Debating Guru | 11 Feb 2015
Political | 0 Participant(s) | 0 Response(s) | 3145 Views

On 9 February 2015, the Indonesian government and the House of Representatives (DPR) agreed to put forward the Oil and Bill (RUU Migas) as the 2015 national legislative priority. One of the most crucial issues to be decided on the Bill is the model of institutional governance for the oil and gas regulatory and supervisory authority. With the disbandment of BPMIGAS, the temporary nature of SKKMIGAS, the romanticism of Pertamina’s old glory days, the question of institutional governance has never been this vital.

This debate presents alternative governance models, the result of which will be echoed to the relevant legislatures and key policy makers with purpose of providing views from all relevant stakeholders and factual key information critical in oil and gas policy making.

On the one hand, the Bill must comply with the constitutional reasoning set out by the 2012 ruling of the Constitutional Court, which essentially dissolved the BPMIGAS and mandated direct control of the state over the oil and gas resources. In particular, the relevant quote of the said decision stipulates:

  • "The Court finds that the right of possession by the State is the number one priority and most importantly is that the State shall carry out a direct control over the natural resources, in this case oil and gas, so as the State receives a bigger portion of profit in natural resources management. The direct management as described above shall be in the form of direct management by the State (State's organs) through State-Owned Companies. And when the State relinquishes the control to the private sectors/companies or other forms of legal entities outside the State, the profits for the state, hence the utility for the people, will decrease" (as quoted from MK Decision No. 36/PUU-X/2012).”


Following this judicial consideration, some experts have made the case for re-empowering Pertamina with the supervisory and regulatory role over upstream oil and gas industry. On the other hand, the performance and capacity of Pertamina to assume such role is questionable, and this calls for other possible fresh alternatives. And there is also another issue of the dwindling reserve and production of oil and gas, coupled with the fact of the steady increase of its consumption, in addition to the astronomical oil and gas subsidy.

These issues are the central themes in the debate of the institutional governance model for the management of upstream oil and gas sector. With the room left open, institutional governance is becoming a lacuna, in which many parties are initiating ideas of how to best manage Indonesia's oil and gas.

Which of the following the Institutional Governance Model(s) Indonesia should go for?

What the Leaders Say

  • Prof. Hikmahanto Juwana, Professor of Law and expert in oil and gas governance reform

    "The institutional design of the regulatory agency should not be associated with corruption issue, as any organization is vulnerable to corruption if good governance is not applied. The institutional design is important to determine the extent of authority and responsibility of the said organization. Irrespective of the nature of the entity, the new organization should be established through laws and regulations (Undang-Undang) and acts as the State's representative in signing oil and gas contract, supervising those contracts and execute all the State's tasks within the purview of its authority. However, the new organization should not be embodied in Pertamina, since Pertamina will exposed to potential losses, as reflected in the case of Karaha Bodas"

  • Dr. Agung Wicaksono, Oil and Gas Governance Reform Team

    "We need to focus on creating an institutional governance that maintains the state's sovereign right over natural resources as constitutionally affirmed by the MK Ruling. Along this line of reasoning, the idea to create a new BUMN is worth exploring, but its working relationship with Pertamina and the Ministry of ESDM is something that we need to carefully design."