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The material judicial review hearing of Law No. 19 of 2003 on SOEs, Monday (14/12/2020) in the Courtroom of the Constitutional Court. Photo by Humas MK/Ifa. 

JAKARTA, Public Relations of the Constitutional Court—The reference for the management of oil and gas in Indonesia is Article 33 paragraphs (2) and (3) of the 1945 Constitution, meaning that oil and gas reserves must be controlled by the state for the welfare of the people, from upstream to downstream. As long as it is vertically integrated, with both SOE holdings and subholdings manage it for the optimal prosperity of the state, this will not be a problem, said energy observer Kurtubi, an expert presented by the Petitioner, the Federation of Pertamina United Labor Unions (FSPPB) at the judicial review hearing of Law No. 19 of 2003 on State-Owned Enterprises (BUMN Law).

The seventh hearing of case61/PUU-XVIII/2020 was held by the Constitutional Court on Monday, December 14, 2020 to hear the House’s (DPR) and the Petitioner’s expert, but the House was absent from the hearing. The Petitioner believes the provision on privatization in Article 77 letters c and d of the BUMN Law violates Article 33 paragraphs (2) and (3) of the 1945 Constitution. 

Kurtubi added that fuel is produced from oil and gas, which is an important production state-regulated branch for the welfare of the people in renewable and non-renewable natural resources. It is a natural monopoly made efficient, because the needs for all Indonesian people are met, the scale is large, national, from upstream to downstream, so it is different from other natural products such as water. 

“There must be regulations regarding oil and gas reserves as state property. The upstream produces crude oil, which is then flowed into refineries and turned into fuel to be distributed throughout Indonesia for the benefit of the people,” explained Kurtubi at the virtual hearing chaired by Chief Justice Anwar Usman alongside the other eight constitutional justices. 

Also read:

Constitutionality of Privatization of Pertamina Subsidiaries

Govt: Sale of Subsidiary Shares Not Privatization

Large Costs

Kurtubi believes Article 33 paragraphs (2) and (3) of the 1945 Constitution can mean that oil and gas management must be integrated under one state company to reduce production costs from upstream to downstream. Different upstream and downstream companies would require transaction between elements in the management until the products reach the community.

He also said the costs for managing oil and gas resources are very large so that centering the management in SOEs is for efficiency in production costs. Only the state is allowed to manage oil and gas for the greatest welfare of the people through SOEs. In addition, the control of oil and gas must be in the hands of the state, while the management is carried out by SOEs.

"Pertamina, which is vertically integrated, regardless of its management status, either holding or subholding, will certainly manage oil and gas from upstream to downstream in accordance with the Constitution. Therefore, it can create a natural monopoly that cannot be defeated in the competitive market. Foreign parties may invest in SOEs, but the mining authority is still granted only by SOEs,” Kurtubi said.

Also read:

Pertamina: Privatization Not Unconstitutional

Expert: Formation of Pertamina Sub-holdings Allows Unbundling 

The Petitioner believesArticle 77 letters c and d of the BUMN Law prohibits the privatization of limited liability companies in certain business lines. They argued that based on the amendment to PT Pertamina’s (Persero) articles of association No. 27 of December 19, 2016, it does energy businesses. Therefore, it cannot be privatized based on the provision of Article 77 of the BUMN Law. Its businesses are integrated from upstream to downstream, covering upstream/exploration, processing/refinery, marketing and trading, as well as distribution/transportation and shipping.

The Petitioner stated that to improve competitiveness, increase value, expand business networks, and manage independence of State-Owned Enterprises (BUMN), the government may form a holding company for SOEs/company group/holding companies. One of the ways is to establish sub-holdings and subsidiaries of PT Pertamina as shown in the Decree of Pertamina Board of Directors No. Kpts-18/C00000.2020-SO on the Basic Organizational Structure of PT Pertamina: Subholding Upstream, Refining & Petrochemical, Commercial & Trading, Gas, Power & NRE, and Shipping Co. The privatization of PT Pertamina subsidiaries by the government has been planned to be done through IPO at sub-holding level.

Writer: Sri Pujianti
Editor: Lulu Anjarsari
PR: Lambang S.
Translator: Yuniar Widiastuti (NL)

Translation uploaded on 12/15/2020 19:30 WIB

Disclaimer: The original version of the news is in Indonesian. In case of any differences between the English and the Indonesian version, the Indonesian version will prevail.

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