Future fuel subsidies offered for tender

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)