Saturday, October 25, 2008

Understanding Mineral Policy In Indonesia

  • Based on the Indonesian Mining Law it is determined that all minerals found within the Indonesian mining jurisdiction in the form of natural deposits as blessings of God All Mighty are national wealth of the Indonesian people and shall, therefore, be controlled and utilized by the State for the maximum welfare of the people.
  • This policy is based on Article 33 of the Indonesian Constitution Law which specifies that the state maintains total sovereignty over land and mineral resources of the country and that they shall be used and developed for the full benefit and welfare of the people.
  • The government thus administers mineral resources development on behalf of the people.Accordingly, within the spirit surroundings this policy framework, are the laws and regulations established by the Government together with the House of Peoples Representative (DPR).
  • This is different with the system in other countries where individuals owning a certain peace of land will be recognized by State of having title ownership on the minerals found below the land owned by such private individual. Besides the written laws, in practices we frequently found unwritten policies which needs us to get the correct guidance since the interpretation between the individual government officers sometimes may differ on to the other.
  • Accordingly, if we happen to be the in-house lawyer in a foreign mining companies, we usually must be equipped with skills, to bridge the understanding and perceptions and wants of the Mining Investors and the officers either local or central.This is significant, to enable in reaching meeting of minds between the foreign investors who are used with their way of dealing with mining operations in their home country and the local mindsets.In common language, if we want to make our sandwich and hamburgers be eaten and taste by the local people, than we have to try to put some local traditional contents in serving such sandwich and hamburgers.
  • With the same spirit, if the local people want their traditional foods to be viewed by foreigners, than the local people must take into considerations in putting some foreign vegetables or contents, which are known by such respective foreigners wherever they come from.
  • By making the above samples, I just wanted to say as a practice business lawyer, that regulations and laws does not stand by itself in a vacuum empty space, but is developed and shaped by the surroundings where such mineral deposits is located.
  • If such same minerals deposits for instances ore, gold, coal or nickel is located in Australia, then the laws and rules of the people in Australia will influence them in making and developing such mineral deposits.
  • These principles will also apply to other countries, where such mineral deposits of ore, gold or nickel are located for instance in America Latin Countries like Chile, Venezuela and in other parts of the world.
  • We also understand that in Indonesia, when Indonesia was under the sovereignty of the VOC, as well as the Dutch, the VOC, and Dutch economical, political system and their peoples view, had shaped the laws and regulations related to the Mineral Deposits, where individual Dutch / Foreign person or Dutch /Foreign Companies may owned the mineral deposits which is known as concession right.
  • While as we understand the local have their traditional perspective relating to the minerals deposits, like in Irian Jaya or Papua, the local people has the believe system that the mountain, including what it contains which are mineral deposits, are considered to be their mother
  • Having said the above, we may understand the laws and regulation more clear, since the rules and laws which are being laid down by the Legislator are influence and at a certain level a political product of such Nation and State.
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    • Agung Supomo Suleiman
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Tuesday, October 21, 2008

Domestic Market Obligation (DMO) issue in OiI/Gas in Indonesia

In the Oil and Gas activities in Indonesia, one of the interesting parts to be observed is the Domestic Market Obligation ( DMO) issue.

Why is it interesting ? This is really interesting because, this DMO is imposed towards the Producing Oil/Gas Companies in Indonesia by the Government of Indonesia (GOI) together with the Peoples House of Representative in Indonesia (DPR) to make sure that the Indonesian Domestic Consumption on Oil and Gas per the running Calendar Year, are being fulfilled.

Accordingly this is within the framework of implementing National Interest of a Nation for the continuity of the development and progress of such Country.

With respect to this issue, it appears that every Nation and Country in this world shall have its task in imposing its National Interests.

As far as the Industries, State Owned Companies, cars and public transportation, Airplanes, Vessels, Army Vehicles, which are the base fundamental needs of such Nation, are still by enlarge are being energized by the oil fuel/ gas, then the institution of such country which is the Government and the House of the Peoples Representatives (DPR) , shall do its up most to ensure that such source of energy to supply their Industry as the back bone of their country are flowing.

The above circumstances, may probably be the reason why DMO is imposed under the Production Sharing Contracts (PSC)/Technical Assistance Agreement(TAC) / Enhance Oil Recovery (EOR) by the Government of Indonesia ( GOI) now being represented by BP Migas.

Relating to this issue, the significant elements among others shall then be as to what kind of formula and to what extent of volume of DMO, shall be shared by each Producing Oil/Gas Contractor in Indonesia.

There has to be a certain Total Number of Domestic Consumption of Fuel/Gas per Calendar Year that has to be established by the GOI together with the DPR based on their studies.

Furthermore what are and from where are the sources for such Domestic Consumption of Oil /Gas, meaning as to how much is it driven from Outside of Indonesia and how much is taken from Inside of Indonesia.

Relating to the "Sources from Inside Of Indonesia", it appears that such DMO shall be shared or based on a certain Quota among "All of the Oil/Gas Companies who are already in the production Stages In Indonesia".

This Quota, is then equally shared prorate among "All of the Oil/Gas Companies who are already in the production Stages In Indonesia".

Based on the above perception, a certain formula was then applied in each and every PSC, TAC, EOR, which based on the Existing Law No. 22 Year 2001, including the Decision of the Constitution Court In Indonesia, such DMO is 25 % of the Oil /Gas Equity entitlement or oil /gas portion of each respective Oil/Gas Contractor in the Calendar Year.

However, as I understand, Law No.22 Year 2001 is now being reviewed, for which, relating to this DMO issue, I understand from a source, that DPR at this present moment is suggesting the DMO figure to be 75%, which appears to be a rather high figure. The representative from the Oil/Gas Community or the Indonesian Petroleum Association shall have their saying in the hearing with the DPR relating to this revision of the Law No. 22 Year 2001 including to the DMO issue .

Agung Supomo Suleiman Senior Partner of the Law Firm of Suleiman Agung & Co


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