Questioning constitutionality: A legal perspective on the Constitutional Court ruling on BPM igas

BPM igas was established in 2002 to take over the authority of managing and supervising the upstream oil and gas industry from the state oil company, Pertamina. On November 13, 2012 the Constitutional Court issued Ruling No. 36/PUU-XI/2012, which declared that select articles of Law No. 22/2001 that were the foundation for the creation of BPM igas were unconstitutional, thereby declaring that they have no legal binding force. As a consequence thereof, BPM igas was ruled to be no longer a valid force in the national oil and gas industry and, in accordance with dictum 1.7 of the Constitutional Court ruling, the functions and duties of BPM igas are to be carried out by the relevant ministry selected by the government until the issuance of a new law on such a matter.

THE TRANSFER OF DUTIES: In response to the Constitutional Court ruling, the government has issued three regulations, namely: the Presidential Regulation Number 95 of 2012 concerning the transfer of implementation of duties and functions of oil and natural gas upstream activities (PR No. 95/2012); the Decree of the Minister of Energy and Mineral Resources Number 3135 K/08/MEM/2012 on the transfer of duties, functions, and organisational structure of the upstream oil and gas activity agency (Decree No. 3135); and the Decree of the Minister of Energy and Mineral Resources Number 3136 K/73/MEM/2012 on the transfer of BPM igas’s deputy chairman and deputy positions to the temporary unit (Decree No. 3136).

Pursuant to PR No. 95/2012 and Decree No. 3135, the implementation of duties, functions and organisation of BPM igas are transferred to the Temporary Working Unit (TPW) under the Ministry of Energy and Mineral Resources (MEMR), until the issuance of new regulation. Simply put, this provision seems to be in line with the ruling.

However, since the regulations use the term “transfer of duties and functions”, which duties and functions exactly are transferred to the MEMR? The duties, functions and organisation of BPM igas are set forth in Law No. 22/2001, and the provisions on such matters in Law Number 22/2001 have been declared unconstitutional based on the ruling. It appears that the transfer of the duties and functions of the BPM igas to the TPW as set forth in PR No. 95/2012 and Decree No. 3135 is legally irrelevant, since the transfer involved the matters that have been declared unconstitutional by the Constitutional Court.

It is true that the Constitutional Court in its ruling stipulates that until the issuance of the new law, the functions and tasks of BPM igas shall be conducted by the government through the relevant ministry. However, this does not necessarily mean that the duties and functions of BPM igas can be transferred to the MEMR, as the term “shall be conducted” cannot necessarily be interpreted as “shall be transferred to”.

It is also interesting to pay attention to dictum 1.7 of the ruling, which states that until the issuance of the new law, the functions and tasks of BPM igas shall be conducted by the government through the relevant ministry. The rationale behind this dictum, pursuant to the consideration section of the ruling, is that the Constitutional Court considered that they need to determine the legal consequence arising after the pronouncement of the ruling with a consideration that the ruling taken by the Constitutional Court not to create legal uncertainty that may cause turmoil in the oil and gas business. In this regard, however, provisions have been laid out in a number of regulations.

Law Number 24 of 2003 concerning the Constitutional Court, as amended by Law Number 8 of 2011 (Law No. 24/2003) states in Article 45A that “ruling of the Constitutional Court shall not contain dictum that is not petitioned for by the petitioners or exceeding the petitioners’ petition, except for particular matter relating to the petition principal.”

Article 57 of the same law contains a number of further stipulations, including: (1) “Ruling of the Constitutional Court which dictum of ruling states that the material content of the paragraph, article, and/or part of the law contradict to 1945 Constitution of the Republic of Indonesia, the material content of the paragraph, article, and/or part of the law has no binding legal force.” (2) “Ruling of the Constitutional Court which dictum of ruling states that the establishment of the law fails to comply with the provision for establishment of law based on the 1945 Constitution of the Republic of Indonesia, such law has no binding legal force.” (3) “Ruling of the Constitutional Court shall not con tain: (a) dictum other than as referred to in paragraph (1) and (2); (b) instruction to legislation; and (c) formulation of rules in lieu of the rules of law declared as contradicting to the 1945 Constitution of the Republic of Indonesia. In light of the above, it appears that dictum 1.7 of the ruling is inconsistent with Articles 45A and 57 of Law No. 24/2003, since the dictum contains a matter that was not petitioned by the petitioners, and tends to formulate a rule in lieu of the rules declared as contradicting to the 1945 Constitution.

THE VALIDITY OF LEGAL CONTRACTS: Another issue is regarding the validity of the Cooperation Contract that has been signed between BPM igas and a business entity (BU) or permanent establishment (BUT). Basically, under Indonesian law, a contract that is created with an unlawful cause shall become null and void. In this regard, the unconstitutionality of BPM igas may be deemed as the existence of an unlawful cause in the existing cooperation contract, thus causing the existing cooperation contracts become null and void.

Furthermore, when the Constitutional Court declared BPM igas’s existence as unconstitutional, all contracts that had been signed by BPM igas were also declared unconstitutional with no legal binding power. This is also in line with the consideration of the Constitutional Court as follows: “According to the Court, the relation between the State and private enterprise in the management of natural resources cannot be conducted under a civil relationship, but must be one that is public in character namely in the form of concession or licensing that is fully under the control of the State. Based on such consideration, according to the Court, the relationship between the state and oil and gas resources insofar as it is constructed in the form of Cooperation Contracts between BPM igas as State-owned Agency or that represent the Government with BU or BUT as set forth in Law No. 22/2001 is contrary to the principle of State control as intended by the constitution.”

Nevertheless, as we can recall, in the consideration of the ruling the Constitutional Court also stated that all cooperation contracts that have been signed between BPM igas and BUs or BUTs shall remain valid until its expiry dates or any other dates according to an agreement. The same is also specified in Article 2 of the PR Number 95/2012.

With regard to such matter, we are questioning the following: (i) whether the Constitutional Court has the authority to determine the validity of cooperation contracts; and (ii) whether the government determine the validity of cooperation contracts by stipulating it in a presidential decree.

With regard to the first question, Article 45A and Article 57 of Law Number 24/2003 can help provide an answer. By referring to these articles, it is clear that the Constitutional Court does not have the authority to determine the validity of a contract, including a cooperation contract. As such, from our standpoint, the statement of the Constitutional Court in the ruling with regard to the validity of the BPM igas contracts does not have legal basis.

Further, in connection with Article 2 of PR No. 95/2012, please note that under Article 1 No. 6 of Law Number 12 of 2011 on the formation of law, a presidential decree constitutes legislation stipulated by the president to implement orders of the higher legislations or in order to implement executive powers. Article 13 of the same law stipulates that the content of a presidential decree must contain materials that are ordered by law, materials to implement government regulations and to implement the executive powers. In our view, the stipulation of the cooperation contract as referred to in Article 2 of PR Number 95/2012, has nothing to do with the scope of materials of presidential regulations as set forth in Law Number 12/2011. As such, we are of the view that Article 2 of PR Number 95/2012 is inconsistent with Law Number 12/2012.

It remains to be seen how this Constitutional Court ruling would re-shape the legal structure for the oil and gas industry in Indonesia. At the moment, there are many questions still left unanswered. There is no doubt that there are some concerns on the consequences that this ruling will have, not only in the oil and gas industry, but in other areas of industry as well. However, we are confident that the government will address and deal with the above mentioned uncertain issues in due course in order to maintain its economic sustainability.