In 2018, the Director of Oil-and-Gas Engineering and Environmental Affairs (“Director”) at the Ministry of Energy and Mineral Resources, which acts as the Head of Oil and Gas Inspections (“Inspection Head”), issued Decree No. 0196.K/18/DMT/2018 (“Decree 196/2018”) on Guidelines for the Implementation of Oil-and-Gas Safety Management Systems (Sistem Manajemen Keselamatan Minyak dan Gas Bumi – “SMKM”). As its title suggests, Decree 196/2018 primarily sets out the applicable guidelines for evaluations of compliance with the SMKM criteria and other safety regulations that are associated with the oil-and-gas industry.[1]

However, in an effort to further improve the culture of oil-and-gas safety within the oil-and-gas mining industry, the Minister of Energy and Mineral Resources (“Minister”) has decided to issue Decree No. 176.K/MG.01/MEM.M/2024, which bears a similar title to Decree 196/2018 (“Decree 176/2024”).[2] Upon its enforcement on 25 January 2025, Decree 176/2024 will simultaneously repeal and replace the existing framework of Decree 196/2018.[3]

Outlined comprehensively under the Appendix to Decree 176/2024, the guidelines for assessments of SMKM applications (“Guidelines”) should be used as a reference during said SMKM application compliance assessments (“SMKM Assessments”). During such SMKM Assessments, various objects of oil-and-gas mining businesses will be subject to said SMKM Assessments (e.g. working areas, relevant business permits, relevant installations and so forth).[4] In this regard, the application of the aforementioned SKMKM is mandatory for all cooperation contract contractors (Kontraktor Kontrak Kerjasama – “KKKS”)[5] and legal entities that have secured downstream oil-and-gas business permits (“Business Entities”)[6] (collectively referred to as “Companies”) nationwide.[7]

In addition to incorporating various adjustments to the basis of the SMKM Assessments previously outlined under Decree 196/2018, the new framework of Decree 176/2024 also introduces various provisions on definitions, the scope of SMKM applications and the implementation process for SMKM assessments. Given these SMKM revisions, this edition of Indonesian Legal Brief (ILB) features a summary of the new provisions that have been introduced under Decree 176/2024, specifically as they relate to the following matters:

1. SMKM Assessment Phases; and
2. SMKM Assessment Aspects.

SMKM Assessment Phases

Generally speaking, Decree 176/2024 has now affirmed that SMKM Assessments should be carried out by the Inspection Head and supported by oil-and-gas inspectors.[8] In this regard, Decree 176/2024 has newly clarified that the aforementioned SMKM Assessments comprise several phrases that broadly break down as follows:[9]

SMKM Assessment Aspects

In essence, the structure of SMKM Assessments broadly comprises ten key substances, with each substance further detailed into expectations and sub-expectations as a set. These elements are evaluated based on specific weightings. The new framework of Decree 176/2024 introduces several adjustments in comparison with the previous framework of Decree 196/2018, including changes to the number of expectations and sub-expectations that apply to certain substances, as well as modifications to the assigned weightings.

In order to summarize these adjustments, the following table highlights an overall comparison between the SMKM Assessment substances that feature under both Decree 176/2024 and Decree 196/2018:[10]

It should be noted that the five substances marked with asterisks (*) above are categorized as main substances under both frameworks.[11] Meanwhile, in terms of the results of completed SMKM Assessments, Decree 176/2024 still features the range of SMKM Assessment scores and categories that previously featured under the framework of Decree 196/2018, as outlined in the following table:[12]

However, it is also important to note that newly addressed under Decree 176/2024, any Companies that fail to secure valid operational eligibility approvals (Persetujuan Layak Operasi – “PLO”) for all operated installations may only secure a highest SMKM Assessment score of 66.4%, which according to the above table, falls under the “Poor” SMKM Assessment results category.[13]

Key Takeaways

The introduction of Decree 176/2024 represents a significant update to the regulatory framework for the management of oil-and-gas safety. The revised SMKM Assessment rates indicate a shift towards improvements in operational safety, training enhancements and the incorporation of modern practices such as ESG. The latest version of the Guidelines also sets out clearer instructions for the implementation of assessments and promotes greater transparency and consistency in terms of evaluations of safety management. Ultimately, restricting the SMKM Assessment score for Companies lacking valid PLO underscores a stronger focus on compliance and operational standards across all oil-and-gas mining installations.

Source: hukumonline.com