Jurisdiction - Indonesia
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Indonesia – Exemption From Letter Of Credit Payment Requirements For Oil And Gas Exports Anticipated.

13 March, 2015

 

Legal News & Analysis – Asia Pacific – Indonesia – Energy & Project Finance

 

Comments made on 10 March 2015 by senior figures within the Indonesian Government indicate that the upstream oil and gas industry may be exempted from the requirement to comply with the Indonesian Minister of Trade Regulation 4/2015 regarding payment by letter of credit for the export of certain commodities from Indonesia (MoT L/C Regulation).

 

At a Jakarta workshop on the MoT L/C Regulation hosted on 10 March 2015 by Petromindo.com (the Indonesian oil, mining and energy news agency), Partogi Pangaribuan, the Director General of Foreign Trade of the Ministry of Trade, noted in his address to the attendees that senior government officials are currently in discussions which may lead to the exemption of oil and gas exports from the MoT L/C Regulation. Mr Partogi indicated that the Vice President has endorsed the potential revision of the MoT L/C Regulation, subject to the agreement of the Ministry of Energy and Ministry of Trade, although initial signs are positive that this agreement may be reached.
 
The rationale for an exemption was explained by Kardaya Warnika, Chairman of the Indonesian Parliamentary Commission VII on Energy (and a former head of BPMIGAS), who commented that the industry is already closely supervised by government (through SKK Migas’ involvement at all stages of the upstream oil and gas value chain in Indonesia). Accordingly, the export monitoring and record-keeping objectives of the MoT L/C Regulation are already largely achieved in respect of upstream oil and gas exports. He also noted that, in the face of increased international competition, there are strong policy drivers in favour of an exemption, to support the competitiveness of Indonesia’s upstream oil and gas industry.
 
The timing for implementation of an exemption was not addressed. However, based on comments from Mr Partogi, we understand that the Minister of Trade has provided, or is currently finalising, special dispensations from the MoT L/C Regulation for a number of specific cargoes from existing projects which are due for shipment shortly after the effective date of the MoT L/C Regulation (1 April 2015) to address the issue while the high-level discussions continue. Any further dispensations would only be considered on a case by case basis following requests from the relevant exporters.

 

Although Mr Partogi and Mr Kardaya’s comments fell short of confirmation that an exemption will proceed, their comments are a strong and positive signal to the upstream oil and gas industry that concerns over the MoT L/C Regulation’s potential impact have been heard and may be formally addressed. We will provide a further update if a revision to the MoT L/C Regulation is issued.

 

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For further information, please contact:

 

Daniel Reinbott, Partner, Ashurst
daniel.reinbott@ashurst.com
   
Sean Prior, Partner, Ashurst
sean.prior@ashurst.com


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