On its decision dated December 15^th 2004, The Constitutional Court partially invalidated Oil and Gas Law number 22 Year 2001 (the “Law”). The petitions for judicial review were submitted by six applicants, namely, APHI, PBHI, Yayasan 234, SNB, FSPSI Pertamina, and an individual applicant (“Applicants”). Applicants submitted the petition on the ground that provisions contained in the Law is in contradiction with Article 33 of the 1945 Constitution.

The Constitutional Court (“CC) declares that it possess the authority to adjudicate the case in accordance with Article 24 of the Constitution. With regards to the legal standing of Applicants, the CC acknowledged the legal standing of APHI, PBHI, Yayasan 234, SNB and FSPSI Pertamina on the ground that they belong to public interest advocacy organization according to their Articles of Association. The CC, however, refused to acknowledge the legal standing of the individual applicant, as it failed to prove either the existence of legal injury afflicted by the enforcement of the Law or a potential breach of its constitutional right.

The CC refuses to grant Applicants’ petition to review the formality of enactment of the Law. Referring to the minutes of meeting of the House of Representative during the enactment of the Law, the CC decides that the Law was enacted in accordance with proper procedure.

As for the material judicial review, the CC focuses its examination on the conformity of the Law with Article 33 (2) and (3) of the Constitution. The CC reiterated its previous decision on the annulment of the Law Number 20 Year 2002 on Electricity, that the core problem of the case lies in the interpretation of the phrase “Control by the State”. Citing its previous decision on the annulment of Electricity Law, the CC reminded that the “Control by the State” phrase should include 5 elements, namely the element of policy, management, regulation, exploitation and supervision for the purpose of public prosperity. The CC also recalled its previous decision that “Control by the state over vital production sectors pivotal to the lives of the people” will be varied from time to time. The CC determined that Oil and Gas sector is at the present time a “production sector vital to the state and pivotal to the lives of the people”.

The CC held that the submissions requested by Applicants – that the Law has hampered the state to exercise its right to control the oil and gas sector as a production sector important to the state and pivotal to the lives of the people – cannot be warranted. The CC is of the opinion that the Law is quite clear in its provision and not in any way jeopardize the state to exercise its right to control the oil and gas sector. In the CC’s judgment, provisions of the Law are different with provision of the Electricity Law whom the CC had annulled in its entirety previously.

However, the CC approved partial invalidation of the Law’s provision. With regards to Article 12(3) of the Law, the CC considered that its formulation contradicts with the constitution and the basic concept of Administrative Law. Article 12(3) of the Law grants the Minister of Energy to the power to “authorize” enterprises to undertake exploration and exploitation of the Oil and Gas Sector. According to the CC, the “authority” to undertake exploration and exploitation lies in the hand of the government and cannot be delegated to private entities. With this consideration, the CC decided to declare that the phrase “to authorize” of the Law to be void and is not legally binding.

Article 28 (2) and (3) of the Law are also subjected to the CC’s invalidation. Article 28 of the Law prioritized on the free-fair competition in determining oil and gas price and puts government’s role to the second. The CC considered this provision might jeopardize the concept of economic democracy as enshrined under Article 33 (4) of the Constitution. As the Oil and Gas sector belongs to the production sector important to the state and pivotal to the lives of the people, the CC determined that price determination must be determined by the government, taking into account certain group in the society and free-fair competition. With such consideration the CC held to invalidate Article 28 (2) and (3) of the Law.

Article 22 (2) of the Law is also subjected to the CC’s examination, although Applicants did not clearly elaborate its request to review the article on its submission. Article 22(2) sets requirement for enterprises undertaking oil and gas exploration to submit, at maximum, 25% of its production output to support internal demand of oil and gas commodity. The CC considered that the 25% maximum threshold is inconsistent with the constitution as it enables enterprises to submit a very minimum percentage of its production output only as a formality to fulfill the Article. The CC held that it decided to declare the phrase “at maximum” to be void and is not legally binding.

Invalidation of Article 28 (2) and (3) might affect the oil downstream sector as price mechanism is now solely determined by the Government.  

While both decisions, annulment of the Electricity Law and partial invalidation of the Oil and Gas law hovers on the similar article and is therefore based on similar legal grounds and similar reasoning method, each carries a different implementation. The Electricity Law has been invalidated in its entirety as its unbundling concept is deemed to contradict Article 33 of the Constitution and jeopardize the state in exercising its right to control the sector. The Oil and Gas Law on the other hand, is perceived not to jeopardize the state in exercising its right to control the oil and gas sector. Somehow, the CC sees that both BPMIGAS (state regulatory body for upstream oil and gas activities) and BPH MIGAS (state regulatory body for downstream oil and gas activity) is sufficient to reflect the “controlled by the state” requirement on the Constitution.

Partial invalidation by the CC of the Law does not render previous contract and agreement to be invalid as the CC’s decision cannot apply retroactively. The Government is currently drafting a new law response to the CC’s decision. Upstream sector is not in any way affected by the decision. (mma)