1

Opportunities under the New Law

Peter Roberts

Adam Summerly

Pipeline M&A in Indonesia

2

Peter RobertsJones Day, Hong KongPh: (852) 3189 7286Fax: (852) 2868 5871

Email: peterroberts@jonesday.com

Adam SummerlyJones Day, SingaporePh: (65) 6233 5994Fax: (65) 6536 3939

Email: asummerly@jonesday.com

3

Introduction

The “Old” Oil & Gas Law

The “New” Oil & Gas Law

The PGN South Sumatra Pipeline Project

Development of the Trans-ASEAN Gas Pipeline

4

The “Old” Oil & Gas Law

Law 44/1960“Mining undertakings of mineral oil and gas are exclusively carried out by State Enterprises”

Law 8/1971Pertamina appointed as the only State Enterprise granted the mining authority to transport gas in Indonesia

5

The “Old” Oil & Gas Law cont’d

Regulation 37/1994• Pertamina’s exclusive transportation authority

opened up to PGN• PGN obliged to:

– develop, produce, supply and distribute processed gas– develop and construct transmission lines– supply and distribute natural gas in accordance with

GOI policies

No opportunity for private sector participation in owning onshore gas pipelines in Indonesia

6

The “New” Oil & Gas Law3 components:

Law 22/2001: passed by Parliament on 23 October 2001, ratified on 23 November 2001

Elucidation: Supplement to State Records No. 4152

Implementing regulations: yet to be established for downstream business activities

7

The “New” Oil & Gas Law cont’d

Transportation activities may be conducted by:• state-owned business entity• regional government-owned business entity• cooperatives; small companies• private business entities

Business entities undertaking Transportation must be established, function and be located in Indonesia

8

The “New” Oil & Gas Law cont’d

“Transportation shall be the activity of transferring Natural Oil, Natural Gas and/or the product of their processing from the Operational Area or from the gathering place and Processing, including Natural Gas transportation through transmission and distribution pipelines.”

9

The “New” Oil & Gas Law cont’d

Must obtain a Business License to undertake Transportation business activities

Business entity engaging in Transportation may not engage in Upstream Business Activities

The Minister shall stipulate a master plan for a gas transmission and distribution network

A Business Entity holding a Business License for natural gas pipeline Transportation “shall only be granted a certain Transportation segment”

10

The “New” Oil & Gas Law cont’d

The Regulatory Body will implement and regulate pipeline gas Transportation

Regulation will cover• tariffs• price of gas for households and small customers• natural gas transmission and distribution

businesses

Open access regime for pipelines that “concern public interests”

11

The “New” Oil & Gas Law cont’d

It is now open for private sector participants to:

acquire interests in existing pipeline infrastructure

participate in future pipeline infrastructure projects

PGN South Sumatra Pipeline Project

13

PGN South Sumatra Pipeline Assets

Grissik – Duri A 540km gas pipeline from the Grissik gas fields in South Sumatra to the Duri steamflood project in Central Sumatra (transporting approximately 300 MMSCFD)

Grissik – Batam – Singapore A 500 km gas pipeline from the Grissik gas fields to Batam and to Singapore, supplying gas to Singapore utilities (ramping up to 350 MMSCFD in 2009)

14

PGN South Sumatra Pipeline Background

Construction of the project funded by:• ADB• EIB• JBIC• PGN• Partial divestment of equity

Partial divestment to experienced international investors a condition of ADB financing

15

PGN South Sumatra Pipeline Acquisition

Competitive bidding process

4 bidders shortlisted in early 2002

Successful bidder Transasia Pipeline Company

Petronas 35%Gulf Indonesia (now ConocoPhillips) 35%Singapore Petroleum Corp 15%Talisman Energy 15%

16

PGN South Sumatra Pipeline Acquisition

Acquisition agreements executed on 12 September 2002

Purchase price around US$187.6 million

Expected to close mid-October

PGN South Sumatra Pipeline Investment Structure

PETRONAS(35%)

SINGAPORE PETROLEUM

CO (15%)

TALISMAN(15%)

CONOCO PHILLIPS

(35%)

PGN

60%PTTRANSGASINDO

40%

TRANSASIA PIPELINE

18

2002• PT Transgasindo created as a wholly owned

subsidiary of PGN• Business license issued to PT Transgasindo• Grissik-Duri pipeline assets transferred from

PGN to PT Transgasindo

GTA to Duri for Caltex steamflooding operations

September 2002• Execution of Transasia Pipeline Co’s buy in to PT

Transgasindo

PGN South Sumatra Pipeline Investment Schedule

19

October 2002• 40% of shares in PT Transgasindo to be

transferred to Transasia Pipeline Co

August 2003• expected completion of construction of the

Grissik-Batam-Singapore pipeline

November 2003• expected transfer of the Grissik-Batam-Singapore

pipeline to PT TransgasindoGTA to Singapore for Gas Supply Pte LtdGTA to Batam for PGN’s distribution network

PGN South Sumatra Pipeline Investment Schedule

20

Indonesian Integrated Transmission System• South Sumatra to West Java• East Kalimantan to East Java• East Java to West Java

Trans-ASEAN Gas Pipeline• Duri to Malaka• East Natuna to Sabah• Arun to Pauh

Future Opportunities

Trans-ASEAN Gas Pipeline

22

THANK YOU