On 13 November 2012, the Indonesia Constitutional Court declared the existence of BPMigas, the authority responsible for the regulation Indonesian upstream oil and gas activities, unconstitutional.

The decision was in response to a petition challenging the validity of the Indonesia Oil and Gas Law No. 22 of 2001 in the light of the provisions of Indonesia’s Constitution of 1945. The Court had accepted the Petitioners’ argument that the implementation of the Oil and Gas Law may infringe the Petitioners’ constitutional rights.

BPMigas was established pursuant to Oil and Gas Law Number 22 of 2001. It took over Pertamina’s responsibilities as regulator of the oil and gas sector in Indonesia.

In arriving at its decision, the Court had referred to Article 33 of the Constitution which generally states that the earth, water and natural wealth of the country shall come under the power and authority of the State and shall be utilized for the greatest prosperity of the people of Indonesia.

The Court also held the following views:

  1. BPMigas performed a limited function of control and supervision over oil and gas assets whilst the direct management over the said resources would be undertaken by business entities and permanent establishments pursuant to the various cooperation contracts.
  2. The separation between the role of control and supervision carried out by BPMigas and the management of the resources carried out by businesses had degraded the State’s rights over its oil and gas assets.
  3. BPMigas’ existence was in contradiction with the provisions of the Constitution, which requires the State to have full control, possession and authority over all national resources for the greatest prosperity of the people of Indonesia.
  4. BPMigas’ existence tended to create inefficiency and abuse of power and therefore its existence would be unconstitutional.
  5. The existing cooperation contracts entered into by and between BPMigas and other businesses will be unaffected and will remain valid until their expiration.

Based on the above, the Court declared, inter-alia, as follows:

  1. That the provisions relating to creation of BPMigas under the Oil and Gas Law are in conflict with the provisions of the Constitutions and therefore, shall have no legal effect; and
  2. That, during the interim, the role of BPMigas shall be performed by the Government (i.e. through the relevant ministry) until the appropriate amendments are made to the Oil and Gas Law.

On the same day when the decision of the Court was issued, President Yudhoyono issued Regulation No. 95 of 2012 on the Transfer of Duties and Functions relating to the Upstream Oil and Gas Activities (“Regulation 95”) which temporarily transferred BPMigas’ responsibilities to the Ministry of Energy and Mineral Resources until further regulations are issued.

Regulation 95 further states that all existing cooperation contracts entered into between BPMigas and contractors shall remain valid and effective until their expiration. Regulation 95 was made effective on 13 November 2012.

It is noteworthy that Article 24C of the Constitution, provides that the Constitutional Court has the power to contest the implementation of statutes against the Constitution at the first and last instance. Decisions made by the Constitutional Court are final and binding but are only applicable proactively. Any decision of the Constitutional Court is not subject to appeal or further review.