State Control over Gross Split Contracts in Indonesia’s Upstream Oil and Gas Sector

Historically, upstream oil and gas business activities in Indonesia have relied on the Cost Recovery-based Production Sharing Contract (PSC) scheme. However, this scheme has often been criticized for its efficiency and contribution to fluctuations in non-tax state revenue (PNBP) amidst the challenges of declining national production. Responding to these dynamics, the Government introduced the Gross Split scheme through Minister of Energy and Mineral Resources (ESDM) Regulation Number 08 of 2017 regarding Production Sharing Contract Gross Split and several amendments made, most recently with Minister of ESDM Regulation Number 13 of 2024 concerning Production Sharing Contract Gross Split as an effort to simplify governance and increase investment attractiveness. This article presents a normative review of the reconception of the State’s Right to Control (HMN) in the paradigm transition. Through the constitutional lens of Article 33 of the 1945 Constitution, this article examines indications of a reduction in the role of the state from an active manager to an administrative authority that tends to be passive. The focus of the argumentation is directed at the problems of formal and material legality, where the use of Ministerial Regulation instruments to change the national oil and gas fiscal fundamentals is seen as less in line with the principle of exceptional discretion mandated by the laws and regulations above and the use of the gross split scheme shifts the authority and flexibility of upstream oil and gas operations management to contractors. The author argues that this shift in management sovereignty requires a stronger legitimization foundation at the statutory level in order to maintain the integration of management (bestuursdaad) and management (beheersdaad) functions by the state. In conclusion, the reconception of HMN must be placed in the corridor of intact energy sovereignty to ensure that every discretionary policy remains oriented towards ensuring legal certainty and protecting the public interest as well as substantively fulfilling the constitutional mandate.