Future fuel subsidies offered for tender

JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto said on Thursday future fuel subsidies would be offered for tender in a bid to promote efficiency among refinery owners.

"The government will give the fuel subsidy to the company which asks the lowest (fee) to supply fuel. Thus, the government will ensure that only efficient refineries will receive the subsidy," Kuntoro said in a weekly news conference.

For example, Kuntoro said, the government wanted gasoline in Irian Jaya to cost the same as in Java, but refinery owners, including state oil and gas company Pertamina, were reluctant to comply because of high transportation costs for the easternmost province.

The subsidies are designed to encourage them to supply gasoline to the remote area.

"Through the measure, the government will be also able to keep the subsidy at a minimum," he added.

Under the oil and gas bill being deliberated by the House of Representatives, the government will lift Pertamina's monopoly on the country's downstream sector and allow foreign investors to develop refineries and market their products on the domestic market.

Pertamina, the only fuel distributor in the country, receives the government subsidy for the fuel sales.

Several legislators and analysts have warned of the possibility of a sharp rise in fuel prices if the government liberalizes the downstream sector.

They also said profit-minded foreign companies would prefer selling fuel in developed areas, including Sumatra and Java, and leave remote areas to deal with fuel shortages.

They argued fuel costs in remote areas were inevitably higher than in developed areas due to high freight costs, or else Pertamina would be forced by the government to sell fuel in remote areas at lower prices.

Kuntoro denied that liberalization of the downstream sector would lead to a sharp increase in fuel prices and varying rates in different regions. He said the government would maintain the fuel subsidy scheme to keep prices affordable and at a standard nationwide rate.

Under the bill, the government will also take over Pertamina's right to award contracts to foreign oil and gas companies, which also covers managing and regulating them.

Pertamina officials have complained that by stripping the company of most of its rights, Kuntoro wanted to undermine its role in the country's oil and gas industry.

Kuntoro insisted the government was determined to turn Pertamina into a world-class oil and gas company, despite the fact that the bill did not touch on measures to enhance the firm's operations.

"The bill does not regulate Pertamina but the country's oil and gas industry. The government will issue the guidelines on how to empower the company in a separate ruling."

Kuntoro said he expected the House to pass the bill by July. (jsk)