"State assets would potentially be on the line if the state loses the case."Jakarta (ANTARA News) - A law professor has stated that the government must heed the interests of the state while signing production sharing contracts, after the dissolution of upstream oil and gas regulating agency BP Migas.
"Right now, there are more than 350 production sharing contracts (KKS) and certainly disputes may arise out of them. So, each dispute must be seriously addressed because, if the government loses the case, it will be the state's loss," University of Indonesia professor Hikmahanto Juwono said here on Friday.
He made the statement after BP Migas was dismantled by a Constitutional Court ruling.
"The Oil and Gas Upstream Regulating Unit (UPKHM Migas) set up by the government, based on Presidential Regulation No. 95/2012, will not be a party in the contracts made with various private businesses," Hikmahanto pointed out.
"It is the state that will be a party in these contracts, because UPKHM is not a legal entity that is separate from the state," he explained.
Hikmahanto said the state would now have to sign contracts directly with contractors and, therefore, it would not be protected in case disputes occur.
"At a dispute settlement forum, be it a court or an arbitrage, it would be the state that would be fighting cases," he pointed out.
"That way, state assets would potentially be on the line if the state loses the case and must pay damages," Hikmahanto continued.
"Things would be different if the state only held some shares in a corporation. That way its responsibility will be limited to the amount of shares it holds or to the assets held by state-owned legal entities," he stated.
Hikmahanto said the government must remember that there is huge investment involved in the oil and gas sector.
"Consequently, businesses can ask for huge damages, which could decimate the national budget, if the state loses in an oil or gas dispute," he noted.
"The state must never become the target of extortion or `judicial mine` in disputes," Hikmahanto said.
The professor stated that the government should not forget the legal dispute between state-owned oil company Pertamina and Karaha Bodas Company, in which Pertamina was asked to pay more than US$250 million in compensation "for an investment of only Rp50 million".
"A British company, Churchill, is now suing the government for Rp18 trillion in a dispute," he pointed out.
Hikmahanto said the Presidential Regulation No. 95/2012 contained three important points.
"Firstly, it transfers all tasks and functions carried out by BP Migas to the Ministry of Energy and Mineral Resources. Secondly, it states all contracts already signed by BP Migas will remain effective until their expiration. And thirdly, the Ministry of Energy and Mineral Resources will continue the exploration and production activities previously carried out by BP Migas," he added.
(Tz.I028/H-YH/INE/KR-BSR/A014)
Editor: Priyambodo RH
Copyright © ANTARA 2012
