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With better services, high grade fuels,
Pertamina ready to face competition

A new dawn is coming for the downstream oil sector in
Indonesia. An era of competition, where national and
multinational companies race to bring the best services and
prices for motorists, households, and industries alike, is
already starting.

In an attempt to open up the market in line with global
trends, the government has enacted the Oil and Gas Law (No.
22/2001), which provides that starting November this year, state
oil and gas firm Pertamina will no longer have a monopoly on the
distribution of fuel throughout this vast archipelago.

Pertamina's exclusive rights for subsidized fuels were
extended until Dec. 31. but it is only a matter of weeks before
free competition starts. For customers, that means beginning Jan.
1, they will see logos other than the blue-red-and-green 'P' of
Pertamina -- the state enterprise's new icon.

They will also have more options in buying petroleum-based
fuels, for example, from Royal Dutch Shell Plc. Despite having a
big head start over the competition, Pertamina has wasted no time
in preparing for the new competitive environment, making numerous
efforts to ensure that customers get even better services from
the company.

"We have to be focused on the customer, not on the
competition," Achmad Faisal, Pertamina's acting deputy for
trading and marketing, said recently. "If we care for the
customers, they will continue to use Pertamina products," he said
confidently.

It will be some time yet before the competition really kicks
in. Shell has opened its first outlet in Lippo Karawaci in
Tangerang, west of Jakarta, selling unsubsidized high-octane
premium gasoline, with a second station in South Jakarta already
nearing completion.

Unsubsidized fuel, however, accounts for only 5 percent of the
total amount of fuel distributed in the country. The bulk of the
business lies in selling subsidized premium gasoline, diesel and
kerosene, of which total sales this year are expected to come to
59.6 million kiloliters (kl).

As the government has stipulated that any firm wishing to
distribute subsidized fuel must have gas stations outside
densely-populated Java, Pertamina will most likely be able
continue its de facto monopoly outside Java for another year.

Nevertheless, Pertamina has been making preparations, for
example, by simplifying the procedures needed to build gas
stations.

Potential investors need only to log on to Pertamina's website
-- www.pertamina.com/spbu -- and fill in the application form,
which will be considered immediately. According to Achmad Faisal,
contracts can be signed in as little as 15 days should all the
requirements, Faisal said.

"We have completely transformed the system," said Faisal. Gas
stations will be connected online and fuel can be ordered
electronically, slashing time outlay and paperwork.

"The managers of gas stations need only sit back and watch
everything being taken care of for them," said Faisal.

In the franchise system, new gas stations, to be classified
into five categories based on estimated daily offtake, will pay a
royalty, which will be repaid in the form of training,
monitoring, marketing and the supply of uniforms. "We will also
help them with the management of their stations," said Faisal.

In an attempt to minimize fuel theft -- a major problem for
many gas station owners -- Pertamina will also take over the
management of fuel transportation. "We will guarantee that the
leakage remains within tolerable limits," said Faisal.

Pertamina owns some 40 out of the 3,157 gas stations operating
across the archipelago.

The gas stations is booming. The stations, which
get 4 percent of the subsidized price as their sales margins, are
enjoying higher revenues since the government hiked fuel prices
by an average of 126 percent in October.

With the opening up of the market, however, Pertamina will
have the power to determine sales margins. "Stations that offer
better services will get higher margins and vice versa," said
Faisal. "It'll be an incentive for gas station owners to improve
their services," he added.

The services provided by the bigger gas stations will also
include air pumps and window washing. These additional benefits,
however, will depend on the number of cars and motorcycles
standing in line at any given time, as Pertamina does not want
the primary service of filling gasoline to be hindered.

"I believe that with competitive prices, correct metering and
good services, Pertamina will remain the company of choice for
our customers," said Faisal.

Another front on which Pertamina is making innovative moves is
the industrial market. Since November, PT Pertamina has been
offering discounts of between 1 percent and 4 percent for oil-
based fuels sold to industry, depending on the consumer's monthly
usage.

"We signed contracts with 38 industrial customers last month
to supply discounted fuel for one year," said Faisal. "With these
contracts, the supply and quality of the fuel will be fully
guaranteed."

To attract consumers, Pertamina will also offer other
services. It will deliver fuel to the customer's front gate
instead of having them come and buy fuel at the company's depots.
"By handling the transportation itself, Pertamina will be able to
ensure that the leakage is tolerable," said Faisal.

Another option that may become available in the near future is
for industries to order special types of fuel to suit their
specific needs. "We are studying the possibility of customizing
fuel composition for particular customers," said Faisal.

As the fuel business is expected to expand significantly,
Pertamina has plans to buy 32 new crude and oil-product tankers
over the next three years. The firm is rejuvenating its fleet to
meet rising shipment volumes and at the same time replace old
vessels.

At present, Pertamina operates a fleet of 33 tankers to
deliver fuel and crude to islands across the country.

"I am confident that Pertamina can stay ahead of the
competition," said Faisal.

"And when Pertamina is strong, the country and its citizens
will get the benefits since all of the profit we garner will be
returned to the state," he added.