Depok, July 5, 2024 – “Institutional reform in Indonesia’s oil and gas sector post-reformation has proven to be a failure. Governance based on Oil and Gas Law No. 22 of 2001 marks a decline in the national oil and gas sector,” stated Dr. Muhammad Kholid Syeirazi during his doctoral promotion session in Administrative Science, Graduate Program of the Faculty of Administrative Sciences, University of Indonesia (FIA UI) at the EDISI 2020 Auditorium, 4th floor of Building M, FIA UI Depok, on Tuesday (July 2, 2024).

In his dissertation titled “Reconstruction of Institutional and Fiscal Design of Indonesia’s Upstream Oil and Gas Sector: Moderating Multi-Stakeholder Interests in the Public Administration Paradigm,” Dr. Kholid used four indicators to evaluate governance performance in relation to the industry and development: technical and operational performance, economic contribution, NOC (National Oil Company) participation, and social impact.

“Based on these indicators, the period under Oil and Gas Law No. 8/1971 marked the peak of the national oil and gas industry, while the subsequent period indicated its decline. This is evidenced by declining reserves and production, reduced economic contribution, and weakened social impact. During the New Order era, oil revenues funded the construction of thousands of community health centers (Puskesmas), elementary schools (SD Inpres), and agricultural sector development, which led Indonesia to achieve rice self-sufficiency. In the Reformation era, however, oil revenues were depleted by fuel subsidies that were misallocated,” explained Dr. Kholid.

Dr. Kholid pointed out that only one indicator improved under the new governance framework: Pertamina’s increased share of production. “However, this did not result from market mechanisms but from government affirmation in transferring management of expiring oil and gas blocks. In the public administration paradigm, this reflects the Neo-Weberian State (NWS) approach rather than the New Public Management (NPM) approach adopted by the governance framework of functional separation,” he added.

Through his dissertation, Dr. Kholid recommended expediting the revision of the Oil and Gas Law to provide legal certainty for the oil and gas industry. He proposed two institutional design options: state control through either one or two NOCs. The two-NOC model consists of a non-operator oil and gas SOE (State-Owned Enterprise) and an operator oil and gas SOE, following the examples of Norway and Brazil with Petoro and Statoil, and Petrobras and Petrosal, respectively.

“The non-operator SOE could be newly established or restructured from SKK Migas to become a non-operator SOE, while the operator SOE would be Pertamina under the PHE sub-holding. The single NOC option would involve merging SKK Migas resources into Pertamina and establishing a new sub-holding to manage contractors,” he elaborated.

If this option is chosen, Dr. Kholid suggested transforming Pertamina into a Non-Listed Public Company (NLPC) to enhance corporate governance. From a governance perspective, the NOC-dominated model with two NOCs appears to be the most feasible and meets multi-stakeholder aspirations.

Key features to be included in both models are facilitating business processes, simplifying licensing, and establishing a Petroleum Fund Management system to allocate oil revenues for long-term savings aimed at supporting energy intensification, conservation, and diversification programs.

In the fiscal design, Dr. Kholid proposed a Production Sharing Contract (PSC) with a progressive fiscal instrument known as the sliding scale, simplified through three parameters: production, cost, and profitability.

“This dissertation has both theoretical and practical implications. Theoretically, institutional reform based on the NPM model, reflected in the functional separation design of the oil and gas sector, has proven unsuccessful, adding to the growing criticism of liberalization-based reforms. Practically, if adapted into policy, this research implies organizational changes, including (1) dissolving SKK Migas, (2) restructuring Pertamina into a Non-Listed Public Company, and (3) establishing a Petroleum Fund Management entity,” concluded Dr. Kholid.

During the doctoral promotion session, Dr. Kholid became the 44th doctorate holder from the Faculty of Administrative Sciences and the 232nd in Administrative Science with a distinction of “very satisfactory.”

The session was chaired by Prof. Dr. Irfan Ridwan Maksum, M.Si, with Promoter Prof. Dr. Eko Prasojo, Mag.rer.publ., and Co-Promoter Dr. Muh Azis Muslim, M.Si. The examination team included Prof. Dr. Ir. Dwi Soetjipto, M.M., Prof. Dr. Amy Yayuk Sri Rahayu, M.Si., Dr. Roy Valiant Salomo, M.Soc.Sc., and Dr. Phil. Reza Fathurrahman, MPP.