In 2019, the Downstream Oil and Gas Regulatory Agency (Badan Pengatur Hilir Minyak dan Gas Bumi – “BPH Migas”) issued Regulation No. 20 of 2019 (“Regulation 20/2019”) on the Auction of Transmission Segments and/or Areas for Natural Gas Distribution Networks (collectively referred to as “Facilities”) and the Granting of Special Rights. As its title suggests, Regulation 20/2019 was introduced in an effort to improve and ensure the economical, effective and efficient construction of advanced natural gas transmission segments and/or distribution channel areas.[1]

However, in an effort to ensure that the applicable procedures and prerequisites for the auctioning of infrastructure construction projects are in line with current requirements, BPH Migas has now decided to introduce Regulation No. 2 of 2024, which bears a similar title to Regulation 20/2019 (“Regulation 2/2024”) and which has been in force since 10 September 2024.[2] As a consequence of the enforcement of Regulation 2/2024, the aforementioned framework of Regulation 20/2019 has now been repealed and replaced.[3]

It should be noted that upon the enforcement of Regulation 2/2024, any Decrees already issued by the Head of BPH Migas in relation to the stipulation of the winners of auctions for the securing of special rights for Facilities (i.e. rights that are granted to business entities by BPH Migas for the transportation of natural gas via Facilities based on the results of auctions),[4] will remain valid. Nevertheless, any auctions that were still in progress upon the enforcement of Regulation 2/2024 must now be brought into line with the new framework.[5]

Against the above backdrop, this edition of Indonesian Legal Brief (ILB) offers a summary of the various new provisions that have been introduced under the framework of Regulation 2/2024, specifically as they relate to the following matters:

1. Adjusted Mechanism for the Stipulation of Facilities;
2. Adjusted Auction Requirements and Procedures; and
3. Mechanism for the Granting of Special Rights Clarified.

Adjusted Mechanism for the Stipulation of Facilities

At its core, Regulation 2/2024 continues to affirm that auctions of Facilities may be initiated by BPH Migas or business entities, as originally addressed under Regulation 20/2019.[6] However, pursuant to Regulation 2/2024, auctions of natural gas distribution networks with existing pipeline infrastructure may only be initiated by BPH Migas, in contrast with auctions of distribution networks without any existing pipeline infrastructure.[7]

In terms of the stipulation of distribution network areas with existing pipeline infrastructure, Regulation 2/2024 now mandates that said stipulations must be carried out by taking the following factors into account:[8]

1. Source of the natural gas supply within the area;
2. Commitment of business entities to completing the construction of pipeline networks for natural gas and/or gas stations for domestic use, small enterprises and/or land transportation;
3. Existing business entities within the area;
4. Existing facilities and infrastructure for natural gas; and
5. Plan of development for natural gas infrastructure.

The above-outlined factors will apply to stipulations of distribution network areas with existing pipeline infrastructure.

In addition, it should also be noted that the requirements for the performance of Front End Engineering Design (“FEED”)[9] and Feasibility Studies (“FS”)[10] during the initiation of auctions have now been adjusted. Under Regulation 2/2024, initiators of auctions must perform FEED and FS. As a consequence, BPH Migas is now required to perform FEED and FS prior to initiating any auctions.[11]

By way of comparison, the previous framework of Regulation 20/2019 required business entities to carry out FEED and FS prior to participating in any auctions, including auctions that were initiated by BPH Migas.[12] In this regard, while the new framework of Regulation 2/2024 still requires said business entities to carry out FEED and FS, this will only apply if auctions are initiated by business entities.[13]

Adjusted Auction Requirements and Procedures

Regulation 2/2024 introduces no significant changes to the applicable general procedure for auctions of Facilities, as originally outlined under Regulation 20/2019. These procedures broadly break down as follows:

However, a significant adjustment has been made to the criteria that have to be met by auction participants as a part of the process outlined in point (2) above. Previously, Regulation 20/2019 stated that the auction requirements included registrations and the submission of offers along with the fulfillment of various administrative, technical and financial requirements, which were required to be incorporated into the relevant auction documents.[14] However, Regulation 2/2024 now revised these criteria based on whether or not there is any existing pipeline infrastructure within the auctioned infrastructure area, details of which break down as follows:

Newly featured under Regulation 2/2024, the Committee will announce and open auction registrations within eight business days by referring to the relevant auction documents. In line with this period, all auction participants will be provided with clarification (aanwijzing) within two business days of the announcement and registration period ending.[17]

Upon the completion of successful registrations, business entities should submit their offers in accordance with the auction documents within 20 days of receiving clarification or making any necessary adjustments.[18]

Furthermore, Regulation 2/2024 offers more certainty regarding the evaluation process for offering documents. In this regard, Regulation 20/2019 did not previously set any strict timeframe for the completion of the evaluation process.[19] However, under Regulation 2/2024, the overall evaluation and assessment process for auction documents should be completed within a maximum of 20 business days after the submission of the relevant offering documents.[20]

In addition, Regulation 2/2024 has also introduced a stricter threshold for refutations, along with a more detailed follow-up process for said refutations.[21]

Mechanism for the Granting of Special Rights Clarified

Regulation 2/2024 has further clarified the applicable provisions on the granting of special rights, as Regulation 20/2019 previously only outlined that special rights were to be granted to auction winners through Committee meetings.[22]

Pursuant to the new framework, winners of auctions of transmission segments will be required to upgrade their agreements with shippers of natural gas from offer documents to agreements for the transportation of natural gas.[23] Additionally, winners of auctions for distribution network areas must also upgrade their documents on potential consumer lists to agreement documents between the said winners and consumers in accordance with the relevant offer documents.[24]

The above-described documents must be submitted to the Head of BPH Migas within three months of the stipulation of the relevant winners. Any failure to submit said documents within the timeframe provided will result in the revocation of the stipulation of the auction winner. Moreover, offer guarantees should be paid into the state treasury in accordance with applicable Laws and Regulations.[25]

Key Takeaways

Regulation 2/2024 provides a more structured and detailed framework for the auctioning of natural gas transmission and distribution infrastructure within Indonesia, replacing the previous framework of Regulation 20/2019. In this regard, Regulation 2/2024 introduces new criteria for the initiation of auctions, the stipulation of distribution networks and the completion of feasibility studies, thereby creating more defined responsibilities for regulators and business entities. In addition, the new Regulation emphasizes the importance of efficiency during the evaluation and assessment processes, while also refining the participant criteria that apply in relation to different types of infrastructure. These changes will hopefully streamline the overall auction process and increase transparency while ensuring that the national demand for natural gas is met effectively.

Source: hukumonline.com