Academic journal article Contemporary Southeast Asia

The Demise of Indonesia's Upstream Oil and Gas Regulatory Agency: An Alternative Perspective

Academic journal article Contemporary Southeast Asia

The Demise of Indonesia's Upstream Oil and Gas Regulatory Agency: An Alternative Perspective

Article excerpt

In late 2012, Indonesia's Constitutional Court declared the law on oil and gas unconstitutional, ruling that the independent regulatory agency (IRA) that the law created interfered with the state's direct control over the country's resources as mandated in the Constitution (Article 33). The controversial decision stunned the foreign investor community and Indonesia's political establishment. At the time of the ruling, BP Migas, as this regulatory agency is known in Indonesia, (1) had been in operation for about ten years and was responsible for over 300 contracts in the oil and gas sector cumulatively worth billions of US dollars. Since the body's disbandment immediately called into question the legality of these contracts, Indonesia's then President, Susilo Bambang Yudhoyono, hastily ordered the formation of a similar agency. This time, however, rather than try to support the agency's independence by placing it under the authority of the president, as was the case with BP Migas, Yudhoyono had little choice but to situate the new body under the auspices of the Ministry of Energy and Mineral Resources.

This turnabout was a serious blow to reform-oriented coalitions that had been seeking to liberalize Indonesia's economy in the wake of the 1997-98 Asian Financial Crisis (AFC) and, conversely, a victory for their opponents, namely, economic nationalists. After all, the decision put the programme of institutionally restructuring Indonesian governance akin to an Organisation for Economic Cooperation and Development (OECD) prototype regulatory state in doubt. It also threatened a key sector to the vitality of Indonesia's economy. Although it is no longer the powerhouse that it was in its heyday of the 1970s and 1980s, in 2010 oil and gas still contributed 20 per cent of total government revenue. (2) It stands to reason that opponents attacked BP Migas the way they did because the sector contained riches and resources worth capturing.

While the magnitude of the decision brought unwanted attention to Indonesia as a place to be wary of for foreign investors, it also piqued the interests of scholars. To date, there have been two approaches to explaining the dissolution of BP Migas. By focusing on the decision of the Constitutional Court, one has attempted to uncover juridical tensions or inconsistencies in the Court's ruling. (3) Another has concentrated on the combined rise of the social and political force that political Islam and resource nationalism represents in the post-Soeharto state, since representatives of these forces were responsible for filing the case against the 2001 law and BP Migas at the Court in the first place. (4) Both of these perspectives yield important insights, but taken together they remain unsatisfactory. For example, the juridical vantage point cannot explain why the justices ruled against the oil and gas law in this instance, but not in prior cases in 2003 and in 2007. Similarly, the social forces argument overlooks two key elements: first, an institutional analysis of BP Migas itself and the caustic debate over its performance amid declining oil production figures that worried officials at the Ministry of Energy and Mineral Resources; and second, the changing political potency of President Yudhoyono.

Thus, this paper argues that to better understand the disbandment of BP Migas--which put billions of dollars of foreign investment in Indonesia at risk and countless more future investments--we need to deploy an analysis of the sector in which the IRA was embedded. A national-level analysis that lacks the specificity to explore fine-grained issues of sectoral governance is inadequate to the task at hand. (5) However, this narrower perspective then should be complemented by broad political examination of trends that extend beyond the plaintiffs in the 2012 case. By looking at these political patterns diachronically over the three cases (2003, 2007 and 2012), I show how the Court's decision-making calculus changed over time. …

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