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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.