Pitan Daslani – The dissolution of oil and gas regulator BPMigas by the Constitutional Court this week highlighted the weakness of Indonesia's lawmaking abilities, some political and legal analysts said, arguing that strengthening the legislative procedure and lawmaking is urgently needed.
The Constitutional Court, known as MK, ruled on Wednesday that several articles of the oil and gas law that served as the foundation of BPMigas were unconstitutional.
The court said that while BPMigas was a representative of the government, it was unable to control the oil and gas sector for the benefit of the people, thus failing to apply the spirit of Article 33 of the Constitution, which states that key sectors of production and natural resources remain under the state's powers.
While MK's ruling on the oil and gas law has been surprising, it is only one of many laws that have been fully or partially scrapped by the top constitutional judges. According to MK, it has amended nearly 60 laws since the court's establishment in 2003.
The experts also agreed that Indonesia's lack of confidence following the 1997 financial crisis and dearth of knowledge in how to regulate its own energy sectors following the downfall of Suharto prompted officials to seek outside help.
BPMigas was formed in 2001, following advice from USAID, a US agency that provides economic assistance in line with American foreign policy. Indonesia, which devalued its currency in 1997, plunged into crisis that had also swept parts of East Asia. The country, under rule by then-authoritarian leader Suharto, sought help from the International Monetary Fund for aid, which in return asked for a series of reforms, which included the energy sector.
Then-Mines and Energy Minister Kuntoro Mangkusubroto sought help from USAID to improve Indonesia's bill on the energy sector and the US government willingly stepped in to salvage the situation, according to a 2008 press statement from the US Embassy in Jakarta. Kuntoro asked USAID "to help review a draft Oil and Gas Law," according to the statement.
The United States provided technical assistance and training for Indonesia as it considered reform in the energy sector after Kuntoro had asked for help, the US Embassy said.
That was part of the implementation of an Indonesian government agreement with the IMF as contained in the Letter of Intent, which required the government to reform the energy sector.
The United States provided "inputs on best practices and international experience on these issues" that were "designed to be helpful and contributed to the [Indonesian] government's process, and all decisions about any changes to law or policy were made by the government of Indonesia as an output of its own processes."
For that, Indonesia and the United States signed what was called a Strategic Objective Grant Agreement under which USAID would channel a total of $20 million for five years.
"These budgets were for funding the long-term technical assistance teams, short-term TAs, workshops and training. USAID mobilized three TA teams for Oil and Gas, Electricity and General Energy," the statement said.
The document explains further that "USAID helped the government of Indonesia to review the draft law, in terms of its consistency, implementability and the phases of the implementation. It also helped review the academic paper for this law, which explains the reasons, how it would be implemented and what likely impacts would occur. This academic law became the 'Oil and Gas Policy' paper."
This revelation shows the government's lack of competence in drafting a law, according to state administration expert Margarito Kamis, who testified in the MK hearings for the oil and gas law.
He told the Jakarta Globe on Friday that even during the proceedings, "the United States government's intervention in restructuring the oil and gas draft law was discussed openly."
Meanwhile, energy industry analyst Kurtubi said that US intervention in drafting the oil and gas law was a logical outcome of the Indonesian government's own policy of obtaining loans from the IMF.
The government's LOI for the IMF required scrapping Law No.8/1971 on state oil and gas company Pertamina and replacing it with a new law, the formulation of which from the initial stage to its adoption and issuing of implementation directives was funded by the World Bank and USAID, Kurtubi explained.
The law sought to liberalize the energy sector and left domestic fuel prices to a free-market mechanism, of which establishment of BPMigas was deemed necessary at that time.
He said the law also sought to split Pertamina's operation into upstream and downstream activities so that it would be easier to privatize the sector.
It also allowed foreign oil companies to conduct downstream operations – or selling and distribution of fuel – only by obtaining an operating license but with no obligation to build the industry's infrastructure. All of Pertamina's downstream outlets must be available for use by foreign downstream operators, Kurtubi said.
The analysts have also suspected the body of being too liberal and inefficient because while cost recovery compensations for the contracts under its auspices continued to swell, Indonesia's crude oil production declined over time to just more than 900,000 barrels per day from the previous level of 1.4 million barrels per day.
Their suspicion was based on the fact that BPMigas was not formed until after the Indonesian government had sought advice and help from USAID to review the oil and gas draft bill that had earlier been rejected by the House of Representatives.
"I told the Constitutional Court that exploitation of natural resources is too big an issue to be handled only by a body that was set up under the Oil and Gas Law. Such an arrangement is unconstitutional because exploitation of natural resources is mandated by Chapter 33 of the Constitution, which is high above the law," Margarito said.
These are part of the reasons why Muhammadiyah, Indonesia's second-largest Islamic organization, is now planning to propose judicial reviews on a number of other laws that it thinks are not compatible with the 1945 Constitution, the analysts said.
The ultimate purpose is to ensure that the people of Indonesia should get maximum benefit from the exploitation of natural resources either by local or foreign operators, political expert Indria Samego said.
He told the Globe that efforts of Muhammadiyah, Nahdlatul Ulama and other mass organizations in proposing such judicial reviews "must be appreciated because they reflect the true aspirations of the people that Indonesia must be sovereign in managing its natural resources."
"The government must be strong," Indria said, otherwise, it would be easily indoctrinated to believe that it must not interfere in the market process to avoid distortion and a high-cost economy, which would be a disaster for the nation if left unchecked.
"Many government officials are seeking help from abroad and in the process they expect to be regarded as being pro-free-market. This is the fate of a colonized nation," he lamented
Senior economist Dradjad Wibowo said that the oil and gas law was too liberal, with an unclear direction. He said that the House must completely overhaul the law.
"It [the law] aimed to cripple Pertamina at a time the company needed to be strengthened in order to become a big-scale player. But because it split Pertamina's operations, it was difficult for the company to accumulate surplus and capital," he said.
The law is also to blame for the drastic decline in the nation's oil production, Dradjad said.
President Susilo Bambang Yudhoyono issued a regulation after the MK's ruling to abolish BPMigas and transfer its authorities to the Energy and Mineral Resources Ministry.
Hikmahanto Juwana, a legal expert from the University of Indonesia, said that disbanding BPMigas and shifting its functions to the ministry represents a setback because it will put the Indonesian government at par with the foreign oil companies with whom it will sign contracts.
Hikmahanto suggested that after so many decades of dealing with foreign contractors, Indonesia should not implement a system where the state signs contracts with foreign operators like it did for ventures with Freeport-McMoRan Copper & Gold and Newmont Mining.