ABSTRACT

The Indonesian oil and gas industry is one of the largest revenue streams for the country. The management of oil and gas in Indonesia is governed in details under contracts entered into by the Indonesian government and domestic and international contractors and investors. The contractual arrangement underwent a number of phases from prior to the introduction of the Law No. 44 of 1960 to the enactment of the Law No. 22 of 2001 on Natural Oil and Gas. The most common and preferred form of contract to date is the production sharing contract. The background leading to the choosing of this issue is to what extent these PSCs executed by the government and investors or contractors have met the principle of sanctity of contract, which constitutes a requirement for the validity of an agreement. This study explains the importance of upholding of sanctity of contract since from the drafting of the agreement up to its conclusion. The reason for this study originates from the inequality of position of the Indonesian government and the investors in terms of the production sharing and the legal certainty of the contract. Another aim is to gain a deeper understanding of the latest issues relating to sanctity of contract by comparing Indonesia’s oil and gas contracts with those executed by other countries. At the end of the study, it is concluded that Indonesia is in need of a production sharing contract that is more equitable, provides greater legal certainty and upholds sanctity of contract.