GOVERNMENT REGULATION NO.

42 OF 2002

ON

THE IMPLEMENTING BODY FOR

UPSTREAM CRUDE OIL AND NATURAL GAS BUSINESS ACTIVITIES

THE PRESIDENT OF THE REPUBLIC OF INDONESIA,

Considering: that to implement the provisions of Article 4 clause (3), Article 41

clause (2), Article 43, and Article 49 of Law Number 22 of 2001 on Crude Oil and
Natural Gas, it is considered necessary to establish a Government Regulation on the
Implementing Body for Upstream Crude Oil and Natural Gas Business Activities;

Bearing in mind:

1. Article 5 clause (2) of the 1945 Constitution as revised through the Third
Amendment to the 1945 Constitution;

2. Law Number 22 of 2001 on Crude Oil and Natural Gas (State Records of the
Republic of Indonesia for 2001, No. 136, Supplement to State Records No. 4152);

HEREBY DECIDES

To establish this: GOVERNMENT REGULATION ON THE IMPLEMENTING

BODY FOR UPSTREAM CRUDE OIL AND NATURAL GAS
BUSINESS ACTIVITIES.
CHAPTER I

GENERAL PROVISIONS

Article 1

In this Government Regulation, the following terms are defined as follows:

1. “Crude Oil,” “Natural Gas,” “Oil and Gas,” “Upstream Business Activities,”
“Exploration,” “Exploitation,” “Work Area,” “Business Entity,” “Permanent
Establishment,” “Cooperation Contract,” and “Minister” are defined as mentioned in
Law No. 22 of 2001 on Oil and Gas.

2. The “Department” is the department whose duties include assisting the President in
carrying out part of the Government’s duties in the sector of energy and mineral
resources.

3. “Pertamina” is the State Oil and Gas Mining Company established on the basis of
Law Number 8 of 1971 on the State Oil and Gas Mining Company in conjunction
with Law Number 22 of 2001 on Oil and Gas.

CHAPTER II

ESTABLISHMENT AND STATUS

Article 2

(1) Through this Government Regulation, the Implementing Body for Upstream
Crude Oil and Natural Gas Business Activities is established, hereinafter to be
referred to as “the Implementing Body.”

(2) The Implementing Body as mentioned in clause (1) shall have the status of a state-
owned legal entity.

Article 3

The Implementing Body shall be domiciled and have its head office in Jakarta.

Article 4

The Implementing Body as mentioned in Article 2 shall be of a non-profit nature.

CHAPTER III

ASSETS, FINANCES AND MANAGEMENT

Article 5

(1) The Implementing Body’s assets shall be assets of the state that have been
separated [from the state budget].

(2) The Implementing Body’s initial assets shall be determined by the Minister of
Finance on the basis of joint consultations among the Department, the Department of
Finance, and Pertamina.

(3) Transfer of ownership and erasure of the assets of the Implementing Body may be
done after receiving prior approval from the Minister of Finance.

(4) The Implementing Body is required to carry out the administration and
management of all assets in any form as mentioned in clause (1)

Article 6

(1) The Implementing Body shall obtain fees as compensation for performing its
duties and functions.

(2) The amount of the fees as mentioned in clause (1) shall be determined by the
Minister of Finance as a percentage of the state’s share of revenues from every
Upstream Business Activity.

(3) The Implementing Body is required to formulate and submit an annual budget plan
and work plan for the Implementing Body to the Minister of Finance for each fiscal
year of the Implementing Body.

(4) The annual budget and work plan as mentioned in clause (3) shall be determined
and approved by the Minister of Finance after obtaining the opinions of the Minister.

Article 7

(1) The Implementing Body shall manage the funds for financing its activities and the
reserves for operational finances.

(2) The amount of the reserve funds as mentioned in clause (1) shall be determined
along with the determination and approval of the Implementing Body’s annual budget
and work plan by the Minister of Finance.

(3) The surplus of funds consisting of the difference between the revenues of the
Implementing Body as mentioned in Article 6 clause (1) and clause (2) and the funds
for financing of activities and the reserve funds for operational finances as mentioned
in clause (1), and the revenues from transfer of assets of the Implementing Body, shall
be Non-Tax State Revenues.

Article 8

Guidelines regarding the assets and the method of formulating the annual budget and
work plan of the Implementing Body shall be determined by the Minister of Finance.

Article 9

(1) The Implementing Body shall manage its finances in accordance with financial
accounting standards.

(2) The management of the Implementing Body’s finances shall be done on the
principles of efficiency, effectiveness, transparency, and accountability.

CHAPTER IV

ORGANIZATION

Article 10

The Implementing Body has the function of conducting supervision of Upstream

Business Activities so that the retrieval of the Oil and Gas natural resources belonging
to the State can provide maximal benefit and revenue to the state for the greatest
possible prosperity of the public.

Article 11

To execute its function as mentioned in Article 10, the Implementing Body has the
duties of:

a. providing opinions/advice to the Minister on his policies on matters of

preparation and offering of Work Areas and of Cooperation Contracts;
b. implementing the signing of Cooperation Contracts;
c. studying and presenting plans for development of fields that are to produce for
the first time in a given Work Area to the Minister to obtain his approval;
d. granting approval for field development plans other than those mentioned in
letter c;
e. granting approval for work plans and budgets;
f. monitoring and reporting to the Minister on the execution/implementation of
Cooperation Contracts;
g. appointing sellers of the state’s share of Crude Oil and/or Natural Gas who can
provide the greatest possible benefit/profit to the state.
Article 12

In carrying out its duties, the Implementing Body has the authority to:

a. supervise and guide cooperation in order to bring about integration and

synchronization of the operational activities of Cooperation Contract
contractors;
b. formulate policy on Cooperation Contract contractors’ work plans and budgets;
c. supervise the primary operational activities of Cooperation Contract contractors;
d. supervise and guide all the assets of Cooperation Contract contractors that are
the property of the state;
e. conduct coordination with parties and/or agencies concerned as necessary in the
execution of Upstream Business Activities.

Article 13

(1) The Implementing Body shall consist of the elements of management, expert staff,
technical staff, and administrative staff.

(2) The element of Management as mentioned in clause (1) shall consist of the
Chairman, the Vice-Chairman, and the Deputies.

(3) The Deputies as mentioned in clause (2) shall be a maximum of five (5) persons.

(4) The Expert Staff as mentioned in clause (1) shall be a maximum of five (5)
persons.

Article 14

(1) To conduct the internal supervision of the Implementing Body, the Supervision
Unit shall be established.

(2) The Supervision Unit as mentioned in clause (1) shall be headed by the Head of
the Supervision Unit, who shall be responsible to the Chairman of the Implementing
Body.

Article 15

The duties and authority of the Chairman of the Implementing Body are as follows:

a. to lead and manage the Implementing Body in line with the Implementing
b. Body’s functions and duties;
c. to sign Cooperation Contracts;
d. to prepare the Implementing Body’s annual work plan and budget;
e. to implement Government policies in the Upstream Business Activity sector;
 f. to regularly provide reports to the President on the execution of duties and on
the finances of the Implementing Body;
g. to represent the Implementing Body, both in and out of Court;
h. to appoint and remove the personnel of the Implementing Body.

Article 16

(1) The Vice-Chairman shall have the duty of assisting in the smooth execution of the
duties of the Chairman of the Implementing Body.

(2) In the case that the Chairman of the Implementing Body becomes permanently
unable to perform his duties, the Vice-Chairman shall carry out the functions, duties,
and authority of the Chairman of the Implementing Body until a definitive
appointment of an official has been made.

Article 17

The Deputies shall have the duty of assisting Chairman of the Implementing Body in
carrying out the duties of the Chairman of the Implementing Body in accordance with
their respective areas of duties.

CHAPTER V

PERSONNEL

Article 18

(1) The Chairman of the Implementing Body shall be appointed and removed by the
President after consultation with the People’s Representative Assembly (DPR) of the
Republic of Indonesia.

(2) The consultation as mentioned in clause (1) is to carry out fit and proper testing of
candidates for Chairman of the Implementing Body by the People’s Representative
Assembly, in this case by the Commission responsible for Oil and Gas.

(3) The Chairman of the Implementing Body, in carrying out his duties, shall be
responsible to the President.

Article 19

The requirements to be appointed as Chairman shall be at least the following:

a. citizen of Indonesia;
b. having integrity and high moral character;
c. having knowledge of and managerial ability in the Oil and Gas industry;
 d. never having been sentenced for having committed a crime;
e. not being declared bankrupt.

Article 20

The Vice-Chairman and the Deputies shall be appointed and removed by the Minister
on the recommendation of the Chairman of the Implementing Body.

Article 21

(1) Members of the Management may not have a personal interest, whether direct or
indirect, in an association or business that is aimed at making a profit.

(2) Members of the Management are not allowed to simultaneously hold any of the
positions mentioned below:
a. Director or Management in a State-Owned Enterprise or other State- Owned
Legal Entity, or a business entity or permanent establishment related to the
functions and duties of the Implementing Body;
b. Commissioner in a business entity or permanent establishment related to the
functions and duties of the Implementing Body;
c. Structural post in a central or regional government agency or institution;
d. Other posts, based on prevailing laws and regulations.

Article 22

(1) The maximum retirement age for the Chairman of the Implementing Body and for
Expert Staff shall be 60 (sixty) years.

(2) The maximum retirement age for personnel other than as mentioned in clause (1)
shall be 56 (fifty-six) years.

(3) In certain cases when it is considered extremely necessary, the President may
extend the term of duty of the Chairman of the Implementing Body for one year at a
time and for a maximum of three (3) times.

Article 23

(1) The President may remove the Chairman of the Implementing Body, in the
following cases:
a. resignation;
b. being considered incapable to perform his functions and duties;
c. engaging in activities or behavior detrimental to the Implementing Body;
d. engaging in actions or behavior in conflict with the State’s interests;
e. physical or mental disability resulting in inability to carry out his duties for
longer than three (3) months;
f. being sentenced to prison for committing a crime.
(2) In addition to the provisions as mentioned in clause (1), in an effort to improve the
execution of the functions and duties of the Implementing Body, the President may
remove the Chairman of the Implementing Body.

CHAPTER VI

ANNUAL BUDGETS AND WORK PLANS

Article 24

(1) No later than three (3) months before the start of the fiscal year, the Chairman of
the Implementing Body shall present the annual budget plan and work plan of the
Implementing Body to the Minister of Finance to obtain approval/ratification, after
obtaining the opinions of the Minister.

(2) The approval/ratification by the Minister of Finance as mentioned in clause (1)

shall [be issued] no later than the start of the fiscal year.

(3) If the Minister of Finance expresses objections in writing, or rejects activities

included in the Implementing Body’s Work Plan and Budget before the new fiscal
year begins, the Implementing Body shall use the budget and work plan of the
preceding year.

(4) Any additions or changes to the Work Plan and/or Budget as listed in the accounts
must first be proposed to the Minister of Finance, following procedures and time
limits set by the Minister of Finance, to obtain approval/ratification.

(5) If, within three (3) months after the request for approval is submitted, the Minister
of Finance has not presented any objections in writing as mentioned in clause (3),
such changes to the work plan and budget shall be considered to have been
approved/ratified.

Article 25

The Implementing Body’s fiscal year for accounting purposes shall be the fiscal year.
CHAPTER VIII

TRANSITIONAL PROVISIONS

Article 26

At the time that this Government Regulation goes into effect:

a. Pertamina shall, within not more than six (6) months, surrender to the
Implementing Body all documents related to the guidance and supervision of
contractors in Production Sharing Contracts and other related contracts;
b. the Chairman of the Implementing Body and the Managing Director of Pertamina
shall, within not more than one (1) year, complete the administrative matters
related to the contracts as mentioned in letter a;
c. all employees of Pertamina who, before the enactment of this Government
Regulation, handled the guidance and supervision of Production Sharing Contract
contractors shall be employed by the Implementing Body, with the provision that
within not more than one (1) year they may choose either to remain employees of
Pertamina or to become personnel of the Implementing Body;
d. the Chairman of the Implementing Body and the Managing Director of Pertamina
shall regulate the completion of administrative matters for the transfer of
Pertamina employees as mentioned in letter c;
e. the salaries and other earnings of personnel of the Implementing Body who have
come from Pertamina as mentioned in letter c, when they become personnel of the
Implementing Body, shall be at least the same as their salaries and earnings when
they last worked at Pertamina;
f. the system of categories for salaries and other earnings of personnel of the
Implementing Body shall be the same as the system in operation at Pertamina,
until determined otherwise by the Chairman;
g. all the assets of the state that are managed by Pertamina and that have up to now
been used in carrying out its duties and functions of guidance and supervision of
Production Sharing Contract contractors shall have their management and use
transferred to the Implementing Body, after receiving the approval of the Minister
of Finance;
h. all the assets of the state that are managed by Pertamina and that, before the
enactment of this Government Regulation, have been used by contractors in
Production Sharing Contracts shall have their management transferred to the
Implementing Body, after receiving the approval of the Minister of Finance;
i. all rights and responsibilities of Pertamina in connection with the implementation
of the functions and duties of guidance and supervision of contractors in
Production Sharing Contracts shall be transferred to the Implementing Body.

Article 27

At the time that this Government Regulation goes into effect:

a. until the end of fiscal year 2002, the operational costs of the Implementing Body
shall be charged to the budget of Pertamina;
b. for the charges for the Implementing Body’s operational costs as mentioned in
letter a, Pertamina shall continue to be given compensation in the form of fees for
guidance and supervision of Production Sharing Contract contractors for the same
period of time.

CHAPTER VIII

CONCLUDING PROVISIONS

Article 28

Details of the functions, duties, organizational structure, working practices, and

regulations for personnel shall be determined by the Chairman of the Implementing
Body, after receiving written approval from the Minister.

Article 29

This Government Regulation shall go into effect on the date that it is passed into law.

So that all persons may know of it, it is ordered that this Regulation be established by
placing it in the State Records of the Republic of Indonesia.

Decided in Jakarta on 16 July 2002

PRESIDENT OF THE REPUBLIC OF INDONESIA

signed

MEGAWATI SOEKARNOPUTRI

Enacted in Jakarta on 16 July 2002

STATE SECRETARY OF THE REPUBLIC OF INDONESIA

signed

BAMBANG KESOWO
STATE RECORDS OF THE REPUBLIC OF INDONESIA FOR 2002, NUMBER 81

This copy is in accordance with the original.

Deputy Cabinet Secretary

Law and Legislation Section

[signed and sealed]

Lambock V. Nahattands
ELUCIDATION OF

GOVERNMENT REGULATION NO. 42 OF 2002

ON

THE IMPLEMENTING BODY FOR

UPSTREAM CRUDE OIL AND NATURAL GAS BUSINESS ACTIVITIES

GENERAL

In an effort to provide a legal basis for steps toward renewal and restructuring of oil
and gas business activities, Law Number 22 of 2001 on Oil and Gas was passed.

Law Number 22 of 2001 states that crude oil and natural gas, as a non-renewable
strategic natural resource contained within the Legal Mining Zone of Indonesia,
represent a national asset controlled by the State. This control by the State is
conducted by the Government as holder of the Mining Authority.

Further, the Government, as holder of the Mining Authority, has established the
Implementing Body to carry out control of Upstream Business Activities in the oil and
gas sector.

Business Entities and Permanent Establishments that conduct Upstream Business

Activities in the oil and gas sector are required to make Cooperation Contracts with
the Implementing Body.

Through this Government Regulation, the Implementing Body is established in

accordance with the mandate of Law Number 22 of 2001.

This Government Regulation contains the basic substance regarding provisions for
the establishment and status of the Implementing Body, its assets, financing and
management, organization, personnel, and annual budgets and work plans.
ARTICLE BY ARTICLE

Article 1

Sufficiently clear

Article 2

Sufficiently clear

Article 3

Sufficiently clear

Article 4

The Implementing Body is not permitted to accumulate funds for operational

costs in excess of limits as specified in this Government Regulation.

Article 5

Sufficiently clear

Article 6

Clause (1)

The meaning of compensation in this provision is fees that represent

pay for the management received by the Government for the activities
carried out as mentioned in Law Number 22 of 2001.

Clause (2)
Sufficiently clear

Clause (3)

Sufficiently clear

Clause (4)

Sufficiently clear

Article 7

Clause (1)

The reserve for operational finances is the amount of funds managed

by the Implementing Body in order to ensure the continuity of
operational finances for the Implementing Body in the current fiscal
year.

Clause (2)

Sufficiently clear

Clause (3)

Sufficiently clear

Article 8

Sufficiently clear

Article 9

Clause (1)
 Financial management in this provision encompasses recording each
transaction or other occurrence in the Implementing Body that
influences changes in assets, liabilities, capital, expenditures, and
revenues.

Clause (2)

Sufficiently clear

Article 10

Sufficiently clear

Article 11

Sufficiently clear

Article 12

Letter a

Sufficiently clear

Letter b

Sufficiently clear

Letter c

Supervision by the Implementing Body includes Exploration and

Exploitation activities, including activities of field management,
transportation, storage, and sales of [a company’s] own products as
the continuation of activities of Exploration and Exploitation conducted
by a Business Entity or Permanent Establishment.

Letter d
Sufficiently clear

Letter e

Sufficiently clear

Article 13

Sufficiently clear

Article 14

Sufficiently clear

Article 15

Sufficiently clear

Article 16

Clause (1)

To assist in the smooth execution of the duties of the Chairman of the

Implementing Body, the Chairman of the Implementing Body may
assign certain duties to the Vice-Chairman of the Implementing Body.

Clause (2)

The meaning of “permanently unable to perform his duties” includes

being removed from office on the basis the provisions of Article 24 and
passing away or being declared missing.

Article 17

Sufficiently clear
Article 18

Sufficiently clear

Article 19

Sufficiently clear

Article 20

Sufficiently clear

Article 21

Sufficiently clear

Article 22

Sufficiently clear

Article 23

Clause (1)

Sufficiently clear

Clause (2)

Efforts for improvement, in this provision, include reinvigorating the

organization of the Implementing Body to achieve better performance,
and to achieve the targets set by the Government.

Article 24
Sufficiently clear
Article 25

Sufficiently clear

Article 26

Letter a

Sufficiently clear

Letter b

Sufficiently clear

Letter c

Within the period of one (1) year as mentioned in this provision,

employees of Pertamina employed at the Implementing Body shall continue
to have the status of Pertamina employees, except if the persons concerned
choose to become permanent employees of the Implementing Body.

Letter d

Sufficiently clear

Letter e

Sufficiently clear

Letter f

Sufficiently clear

Letter g
Sufficiently clear

Letter h

The assets used by contractors in Production Sharing Contracts

include land, buildings, material and equipment used in Upstream Business
Activities related to Production Sharing Contracts.

Letter I

Sufficiently clear

Article 27

Sufficiently clear

Article 28

Sufficiently clear

Article 29

Sufficiently clear

SUPPLEMENT TO STATE RECORDS OF THE REPUBLIC OF INDONESIA,

NUMBER 4216