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Age Does Make a Difference: Retirement Age Laws in Oil & Gas

Like working in Indonesia? Don’t get old.

I was 38 years old when I first stepped off the Garuda plane in Indonesia for my first overseas assignment with an international oil and gas company in 1991. 24 years and three different work assignments later, it seems just like yesterday. Throughout this time period, our family moves in and out of Indonesia have been quite fluid with minimal extraneous disruption. This month, however, my wife and I will be leaving for the last time.

I turned 62 in March. It was a personal decision to retire, but a strong driver was the inability to renew a cost-recoverable KITAS working permit under the auspices of my employer.

The mental mistake many expats working in Indonesia make is the misconception that they can easily work for as long as they like, similar to their home countries.

Indonesia actually has laws which stipulate the ‘official’ retirement age of nationals to be 55 years of age – it is no wonder the country would want to have these same stipulations apply to the working expat community.

Recent changes

Recently, the maximum age for technical professionals has been reduced to 55 from 60 for those working under a cost-recovery basis. This does not necessarily apply to those expats working within the oil industry, where 100% of their costs are borne by their sponsoring company. In addition, this age limit may not directly apply to expatriates holding executive positions of President, Director or VP of Finance.

Historical context

Years ago, an expatriate assignee selected by his or her company may have had to wait two to three months for the processing of a work permit, or KITAS. Recently, that waiting time has shrunk considerably, but the intricacies imposed by the Government of Indonesia for the approval of a cost-recoverable expatriate slot within a Work Program and Budget (WP&B) scheme have become more complex. Multiple agencies are involved and stop-gaps during the approval process may have a tendency to hamper the filling of internal slots with the desired specialist expatriate positions by upstream exploration and production oil companies.

How the oil and gas industry works

To understand the reason for this complexity within the oil and gas industry is to better understand how Indonesia applies international petroleum laws to lease out a surface region with subsurface mineral rights (called a Block) to a foreign or domestic entity. Oil companies here operate under a Production Sharing Contract (PSC). PSCs are agreements with the central Government, whereas any hydrocarbon produced within the Block is shared by both the Company (called the Operator) and the Government. Typically, the production splits for oil are 70% to the Government and 30% to the Operator. Companies competitively bid for Blocks and are awarded by their submitted work programme and expected forward monetary expenditures.

Once the Block is awarded, the company has an obligation to complete this designated work within a specific time period. For planning and budget purposes, the company develops a work programme and budget (WP&B) which must be approved yearly by the Government. Early in the process, the company must come up with an organization chart and obtain approval from the oil and gas regulatory agency known as Satuan Kerja Khusus Minyak dan Gas (SKKMIGAS) for the Rencana Penggunaan Tenaga Kerja (RPTK), literally interpreted as the human resource labour plan. Approval of this plan is critical in terms of what expatriate positions will be available to the company for the particular asset. If no expat slots are presented and approved, it is extremely hard to add them in at a later date. 

Cost recovery

When an economically viable discovery is made within an operating Block, development and production of the discovery can proceed (upon lengthy approvals). Developing an oil and gas field can be extremely expensive, for which the operating company must bear the direct cost. Under a PSC, some of this capital and operational expenditure can be cost-recovered through the sale of oil allocated to the Government of Indonesia. This recovery of costs comes directly out of the government’s coffers, so you can imagine why Indonesia wants to keep the cost in line with the economics of the project. As you would expect, total costs associated with the employment of an expatriate normally are higher that of an equivalent national employee. For this reason, it is sometimes difficult for a company to justify the costs of the expatriate to the oil and gas regulatory bodies.

Alternative methods to work

There is still flexibility within the system with legal channels to continue employment past 55 years of age. One method is to use one of many local manpower companies which act as agents. Some of these companies may retain ‘technical specialist’ slots which – if your qualifications match – you may be directly employed through. The parent company could then sign a contract of work with the ‘agent’ under an approved procurement of work. The agent is actually acting as a sub-contractor who provides the manpower and methodology to accomplish the work as set forth within the approved work program and budget plan of the oil and gas company. This all sounds complicated, but the method is frequently used for particular short-term work projects which require the use of a skilled technical specialist.

Highly qualified specialists such as geochemists and biostratigraphers may sometimes circumvent the current age restriction in cases of no available nationals to fill this type of position. This would be on a case-by-case basis and would require direct justification support for approval.

For older expatriates married to an Indonesian spouse or those with a long-term sponsor, the government of Indonesia offers another avenue to continue working. In this case, the spouse would sponsor the foreigner through the application and approval of a Kartu Izin Tinggal Tetap (KITAP). The literal interpretation means a permit card to stay on a permanent basis. This procedure may be initiated by application of the permit itself, which may take 3-4 months to process. Upon approval of this permit, the person may then apply for a five-year KITAP. Approval of such allows one to work.  After the initial five years, application for a lifelong residency and work permit is possible.

Conclusion

Indonesia is not the only country in Southeast Asia with age restrictions. For example, the age limit for many professionals applying for a work permit in Singapore is 50 (except for Malaysians, for whom is 58).

Indonesia has historically courted foreign investment but it is currently finding itself in a balancing act between ensuring a level of profit for the investing oil company, at the same time protecting and further developing the local workforce. Where these goals don’t align, problems may occur, and the investing company may feel unable to operate without the number of foreigners they would like.

I personally hope this is not really the last time my wife and I leave Indonesia. I love the people, the culture and as a geologist, particularly the rocks. We can always return as needed, where my company sponsor doesn’t mind paying 100% of the associated costs!

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Gregg Hollomon is a California native working as a professional geologist, residing in Jakarta. His first ‘overseas’ tenure (if you don’t count Miami) was in Jakarta back in 1991. 23 years later, Gregg still sees the joy of returning to Indonesia. If you ask him what has changed, he would comment that the bad is worse but the good is better. That’s Indonesia for you!


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