Factors beyond Pertamina affecting fuel supply

By Rikza Abdullah

JAKARTA (JP): The recent gasoline shortage here, the first of its kind in 30 years, made the public wonder if there might be something wrong with the country's fuel distribution system.

The shortage, which also affected East Java and Bali, was said to be linked with the shutdown of the Balongan oil refinery in West Java, which has a processing capacity of 125,000 barrels of crude oil per day (bpd).

An explosion at a processing unit in Balikpapan last Monday fueled fears of another possible shortage on the domestic market. The refinery in the East Kalimantan town has a capacity of 260,000 bpd.

Some, including Minister of Mines and Energy Susilo Bambang Yudhoyono, have blamed Pertamina, the state-owned oil and gas company given a monopoly over the petroleum industry in the country, for the shortage.

But a former Pertamina director for domestic supplies and distribution, Nusirwan Sutan Assin, said the shortage stemmed from nontechnical factors which were beyond the authority of the company.

Sutan, who is now a deputy rector for human resources development at Trisakti University in Jakarta, talked to The Jakarta Post last Tuesday and explained why the country, particularly the capital, is prone to fuel supply shortages.

Question: What was the cause of the gasoline shortage that recently hit Jakarta, a most politically sensitive city?

Sutan: The gasoline shortage was caused by the shutdown of the Balongan refinery, on whose supplies Jakarta and its surrounding areas depend very much (for about 70 percent to 80 percent of fuel supplies). The refinery stopped operations on June 20 and resumed production on July 25. Jakarta and its surrounding areas did not suffer a shortage of fuel as soon as the shutdown occurred, apparently because tankers usually destined for East Java were diverted to Jakarta. That was why East Java was hit by a fuel supply shortage before Jakarta was finally affected on July 23.

Why couldn't other refineries or imported gasoline temporarily provide adequate fuel supplies for Jakarta?

Because congestion at the Tanjung Priok oil harbor in North Jakarta limited the speed of the flow of oil fuel from tankers to Pertamina's nearby oil terminal at Plumpang.

To what extent can the Balongan refinery be relied upon?

The refinery has apparently not been designed as a reliable plant. For example, it is supported by only one big compressor, instead of two or three smaller compressors. The transportation of products from one processing unit to another is carried out by one-line pipes, instead of three-line pipes. That means that whenever there is something wrong with the compressor or with the pipes, the refinery will have to stop operation.

How is it that Jakarta and its surrounding areas are so dependent on an unreliable refinery?

That was caused by nontechnical factors that were beyond the authority of Pertamina.

Could you elaborate?

Pertamina, widely known as the state oil monopoly, is actually just an "executor" of the government's policy in the oil industry. The company is assigned, among other things, to manage the domestic fuel supply and distribution but the government does not give it freedom in its operations.

These are things like determining the level of national fuel stocks, purchasing crude oil that is technically appropriate for its refineries, transporting oil fuel from refineries to around 150 depots throughout the country, coordinating the distribution of different fuels to all types of its customers (individuals, cooperatives and companies), setting the prices of its products.

And even determining the costs of its operational activities.

What about the nontechnical factors?

Pertamina is expected to prepare the planning of its activities but they must get approval first from the government and the board of commissioners before implementing the plans. The board consists of five ministers and is chaired by the minister of mines and energy.

When I was a director for domestic supplies and distribution from 1986 to 1989, Pertamina proposed to the government that to improve the security of fuel supplies throughout Java, a new refinery should be established in East Java where increasing fuel demand justified this step.

To facilitate the smooth transportation of the fuel, a pipeline would have to be built between the proposed refinery and Yogyakarta, where an oil depot was in operation with the fuel being supplied by a 300,000 bpd refinery in Cilacap, Central Java.

Because a pipeline network between the Cilacap refinery and Bandung, through Melambong, West Java, was also operational, another new pipeline should have been established between Jakarta and Melambong through Balongan in Cirebon.

Such an interconnected pipeline network would guarantee zero risk for fuel supplies throughout Java. But unfortunately, the proposal was turned down by the government.

What happened then?

In 1989, instead of building a refinery in East Java, then minister of mines and energy Ginandjar Kartasasmita made a decision on the construction of the Balongan refinery, equipped with a pipeline leading to the Plumpang oil depot in North Jakarta.

Because a pipeline has not been built between Balongan and the Cilacap-Bandung pipeline, the two refineries in Balongan and Cilacap are not interconnected and they, therefore, cannot support each other whenever any supply problems occur at one of them. East Java has also been left vulnerable to supply shortages.

Why didn't the government grant Pertamina's request for the establishment of the Balongan-Melambong pipeline?

I don't know exactly but I think we can guess the reason. As soon as the proposed pipeline was established, a number of tankers which were then transporting oil fuel from Cilacap and other refineries to Jakarta would have lost their jobs.

Who operated the tankers?

Companies belonging to the children of then president Soeharto.

Why didn't Pertamina ask them to build the proposed Balongan- Melambong pipeline, as they built the existing pipelines?

I don't know. But the facts show that it has not been built.

Why didn't Pertamina cooperate with multinational oil companies in supplying fuel by exchanging products, so quick deliveries could be made at favorable prices?

Pertamina used to have long-term contracts with big oil companies like Shell, Caltex and Mobil for the exchange of products with deliveries to be made whenever needed. But in the early 1980s, the contracts were terminated because the president instructed Pertamina to assign Permindo, a company belonging to the first family, to become its sales and purchasing agent. From that time on, Pertamina had to buy oil products at higher prices and sell its products at lower prices.

Do the government's policies affect the security of domestic fuel supplies?

Some of the policies affect the quality of supplies, at the least.

Because the government subsidizes the domestic utilization of oil fuel, it determines the costs for everything, including the cost for the transportation of fuel from depots to gas stations. Since the transportation cost is too small, privately owned transportation companies are trying to blend gasoline with kerosene, which is far cheaper, on the way between depots and gas stations.

Owners of gas stations, which are given a discount of only 4 percent of sale prices, are also encouraged to modify their meters down so they can finance their overhead costs and recover their investments.

There is talk that Pertamina must send its export revenue to Bank Indonesia immediately and prefinance all the costs of its activities; but on the other hand it has to wait for up to six months if it claims for the difference between its sales revenue and its production costs, usually known as subsidies. Does this affect Pertamina's operation?

Of course. The company, for example, sometimes finds difficulty paying for its imports because, as a consequence of the fact that its export revenue goes directly to Bank Indonesia, it cannot open a letter of credit by itself.

Will the recent explosion at a processing unit at the Balikpapan refinery affect the security of domestic fuel supplies?

I think its impact will be small because the refinery's production decreased by only about 20,000 bpd after the explosion.

How can Pertamina improve the security of its fuel supplies in Java?

First, it must construct a pipeline between Balongan and Melambong to interconnect the pipeline system between the two refineries in Balongan and Cilacap. The construction of the proposed Balongan-Melambong pipeline, the best short-term alternative to secure fuel supplies in Jakarta and its surrounding areas, can be finished in less than two years.

Second, a fuel terminal should be built in Cikampek, West Java, to reduce the burden on the Plumpang terminal in North Jakarta and to reduce transportation costs for distribution in the West Java town of Purwakarta and its surrounding areas.

Third, a new refinery can also be built in East Java with a pipeline network interconnected with the existing pipeline in Yogyakarta.