Indonesia revises upstream regulation to revive E&P investment

Report summary

On 23 Sept, the government of Indonesia finalized a revision of Government Regulation No.79/2010 (GR79), to remove indirect and regional taxes on exploration investment. GR79 is a key element of upstream legislation that provides rules on production sharing contract terms, including project ring-fencing, cost recovery and indirect taxes. The revision of key parts of GR79 is an attempt to reinvigorate an industry that has suffered from lower oil prices and their impact on capital budgets. By 2020, total production from Indonesia is set to fall by 25% and new development projects are scarce. Despite the positive step on this revision, Indonesia will need more dramatic reforms to compete for new investment in the current oil price environment, especially on tackling burdensome regulation, ineffective bureaucracies and irregularly enforced legislation.