Awaiting the New Oil and Gas Law ...

Awaiting the New Oil and Gas Law to Unlock Upstream Investment

According to data from the Ministry of Energy and Mineral Resources (ESDM), national oil consumption now stands at 1.4 to 1.7 million barrels of oil per day (BOPD), while domestic production hovers around 605,000 BOPD. That widening gap puts Indonesia at a crossroads in safeguarding its energy security, especially as the government has set production targets of 1 million BOPD of oil and 12 billion standard cubic feet per day (BSCFD) of gas by 2030.

To reach those targets, according to ministry data, the upstream oil and gas sector is estimated to require around USD 18 billion to USD 20 billion in investment per year to tap its still-abundant geological potential. Of Indonesia's 128 oil and gas basins, only 60 have been explored. However, most of the remaining potential lies in frontier and deepwater areas, which demand more capital, cutting-edge technology, and a high tolerance for risk. That capital will not come on its own. Many oil- and gas-producing countries are competing for it, and investors will choose the most promising destination.

The problem is that the attractiveness of upstream oil and gas investment is determined not only by the scale of geological potential but also by the rules that govern it. The legal framework for the upstream sector still rests on Law No. 22 of 2001 on Oil and Natural Gas, parts of which have been amended through Constitutional Court rulings, while its revision remains unfinished. In the race to attract capital, legal certainty can determine whether Indonesia is chosen or bypassed.

Investors weigh two main factors before making long-term commitments: the speed of the permitting process and the certainty of the fiscal framework throughout the contract period. Based on that understanding, the Indonesian Petroleum Association (IPA), an association of upstream oil and gas companies operating in Indonesia, has proposed several improvements that it believes should be included in the new law to make upstream investment more attractive and help achieve the government's targets.

IPA has put forward four key proposals focused on improving competitiveness and investment attractiveness: (1) simpler licensing, (2) lighter tax schemes, (3) a choice of tax regimes, and (4) clear mechanisms for resolving contractual disputes.

On licensing, IPA proposes a coordinated framework with clear deadlines. In addition to reducing overlapping authority among ministries and agencies at the central and regional levels, this approach is also expected to shorten the time required to move from exploration to production. For investors, a coordinated and transparent process means lower costs. IPA therefore proposes that the Special Business Entity for Oil and Gas (Badan Usaha Khusus/BUK Migas) act as the single coordinator for all permits and approvals, including the land acquisition required for upstream activities.

IPA also proposes reinstating the "assumed and discharged" principle. Under this arrangement, contractors, the parties carrying out projects under cooperation contracts, would bear only direct taxes, such as corporate income tax. The government would cover the remainder, including indirect taxes, levies, and other charges. According to IPA, this would provide the fiscal certainty that is crucial for contractors, given the long-term nature of upstream projects.

IPA further hopes that the new Oil and Gas Law will provide certainty regarding mechanisms for resolving contractual disputes, provided that the matter does not constitute an unlawful act and/or was not carried out in bad faith.

Ultimately, efficient licensing, predictable tax rules, and clearer dispute resolution mechanisms will make Indonesia's upstream oil and gas sector more attractive to investors. This will strengthen Indonesia's appeal among domestic and international energy players and support the government's goal of achieving energy self-sufficiency.