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Indonesia Govt to Shift O&G Regulation to Energy Ministry

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JAKARTA - Indonesia's government is making plans to fill a regulatory vacuum after the country's constitutional court ruled that the country's regulator of the upstream oil and gas sector doesn't have a right to do the job it was created to perform.

Coordinating Minister for the Economy Hatta Rajasa told reporters Tuesday that the government respected the court's decision and will immediately draft a presidential decree to enable a smooth transfer of the regulator's responsibilities to the energy ministry.

"We want to avoid regulatory vacuum and uncertainty," said Mr. Rajasa.

Indonesia, which gave up its membership in the Organization of the Petroleum Exporting Countries in 2008 after becoming a net oil importer in the early 2000s, has been unsuccessful in efforts to expand production due in part to what is widely perceived to be an uncertain foreign investment environment.

Mr. Rajasa's comments came hours after the court unveiled its ruling--and its recommendation that the regulator, BPMigas, transfer its functions to the Ministry of Energy and Mineral Resources.

"Considering that BPMigas's existence could potentially lead to inefficiency and abuse of power, the constitutional court is of the view that BPMigas is unconstitutional," the court said early Tuesday afternoon.

The government established BPMigas in 2002 to oversee oil and gas exploration and production under Indonesia's 2001 Oil and Gas Law. BPMigas took over regulatory functions that had previously been conducted by PT Pertamina, the state-owned domestic integrated oil and gas company.

"BPMigas is a product of the reform era," R. Priyono, the head of BPMigas, told reporters, referring to political and economic reforms that followed the fall of autocratic ruler Suharto in 1998.

A number of organizations, including Muhammadiyah, one of Indonesia's two largest Muslim associations, as well as politicians and academics, petitioned against the Oil and Gas Law in March, saying it didn't adequately vouchsafe Indonesian resources for Indonesians.

Constitutional Court Chairman Mahfud MD told reporters after the court announced its ruling that contracts that were signed with BPMigas previously will remain valid under the new regulatory system.

Kurtubi, a lecturer on oil and gas at Universitas Indonesia in Jakarta, said the government should mandate Pertamina to sign production-sharing contracts with investors, following a model used in many other countries, including neighboring Malaysia, where state-owned Petronas signs such deals.

"It's simpler and less bureaucratic," Mr. Kurtubi said.

Joko Hariyanto and Linda Silaen contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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