Pertamina’s Right of First Offer Over Domestic Crude Oil and Condensate Further Clarified
Updated: Sep 16, 2021
On 1 July 2021, the Minister of Energy and Mineral Resources issued Minister Regulation Number 18 of 2021 regarding Prioritisation of the Use of Crude Oil for the Fulfilment of Domestic Demand (“Reg 18/2021”).
Reg 18/2021 replaces Minister of Energy and Mineral Resources Regulation Number 42/2018 that had originally introduced the requirement for all PSC contractors in Indonesia (or their affiliates) to first offer their “Contractor Share” of crude oil and condensate to PT Pertamina (Persero) (“Pertamina”) and/or domestic refineries.
Reg 18/2021 maintains the obligation:
for PSC Contractors to make a first offer to Pertamina and/or domestic refineries for the sale of the Contractor Share of crude oil and condensate by no later than three months prior to the commencement of the period of the export recommendation for that relevant Contractor Share of crude oil and condensate; and
once the offer has been made, for the relevant parties to enter into customary “business to business” negotiations on the offer made by the PSC Contractor.
Reg 18/2021 further provides that any negotiation must be conducted within a period of 20 days from when Pertamina and/or the domestic refinery receives the PSC Contractor’s (or its affiliates’s) offer, and if no agreement is achieved, the PSC Contractor (or its affiliate) may sell the relevant Contractor Share of crude oil and condensate to another party.
The PSC Contractor is required to provide evidence of the result of the negotiation to the Directorate General of Oil and Gas (“DGOG”) when applying for the export recommendation for the relevant crude oil and condensate.
If Pertamina (or the domestic refinery) and the PSC contractor (or its affiliate) are able to come to agreement on the terms for the sale, Pertamina will be able to directly enter into an offtake contract for a period of 12 months with the PSC contractor (or its affiliate) without having to carry out a tender.
The issuance of Reg 18/2021 brings much needed clarity on the implementation of the Pertamina first right of offer, in particular, the prescribed period for negotiation between Pertamina (or the domestic refinery) and the PSC Contractor (or its affiliate) to come to agreement on the offer made by the PSC Contractor. This will hopefully provide more certainty and ease for future application for export recommendations made to the DGOG for the Contractor Share of crude oil and condensate.
For any particular question regarding Reg 18/2021 reviewed in this update or the application of Reg 18/2021 to specific circumstances, please do not hesitate to contact Avinash Panjabi at firstname.lastname@example.org
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying it to specific issues or transactions.
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