Gasoline shortage

Although gasoline supplies began to return to normal on Wednesday, the severe shortage that fueled panic and prompted long queues at gasoline stations in Greater Jakarta on Tuesday raised again serious issues about the capability of the state oil monopoly, Pertamina, fuel smuggling overseas and the need to open domestic fuel distribution to the private sector.

Like rice, gasoline is a basic, and even strategic, commodity, whose supply or price could trigger social, political and security instability. An actual or perceived shortage could easily cause panic, a hysterical condition which usually feeds on itself. This was observed on Tuesday when motorists formed long lines at many gasoline stations in Jakarta. The scene caused jitters and prompted people to buy more than they normally did, thereby worsening the shortage, despite assurances by Pertamina of an imminent additional large supply. It is also still clear in our minds that the raising of fuel prices in April, 1998 was in part responsible for fueling the national crisis that led to the resignation of then president Soeharto in May, 1998.

Blaming repairs at the Balongan refinery in West Java and a stoppage of gasoline imports from Kuwait for the sudden shortage, as Pertamina and the Ministry of Mines and Energy did, is hard to accept. Even though the shutdown of the Balongan refinery for almost one month since June 20 was not anticipated, routine maintenance work, the production stoppage should not have caused such a shortage, which also hit several other towns in Java and Bali. After all, our closest neighbors, Singapore and Malaysia, are a major center of oil refineries.

Pertamina, which has monopolized the petroleum industry since 1968, should have been well appraised of the national need, the capacity of the domestic refinery and the volume of imports required.

Pertamina's new president, Baihaki Hakim, said in March that the country's oil fuel demand this year was estimated at 40.7 million kiloliters, of which about 20 percent had to be imported due to the inadequate capacity of the company's refineries.

The stoppage of production at the Balongan refinery certainly caused some disruption to supply, especially as it alone accounts for 12 percent of the national output. Likewise, the reported blowing up of the Alamahadi refinery in Kuwait worsened the supply problem. But a well-managed distribution system and an adequate national stock should have avoided such a shortage.

It is unthinkable if Pertamina did not maintain a national stockpile of such a strategic commodity at least for 30 days of consumption, especially for emergency needs in Java, where only two refineries operate. A stockpile is even more imperative nowadays, given the country's dependence on imports for about 20 percent of its fuel needs.

But then the problem may have been an underestimation of the real domestic demand on the part of Pertamina because quite a portion of the subsidized fuel oil has been smuggled overseas. Little has been heard of what Pertamina and other government agencies have done to prevent smuggling after the discovery of the contraband export of the subsidized fuel from Jakarta and several small remote ports in May and June. If export smuggling continues, especially now that international oil prices remain high (above US$28 per barrel) and make contraband trade much more lucrative, Pertamina will remain in the dark about the real supply and demand condition.

Managing fuel oil distribution across a vast archipelagic country like Indonesia at the same price level is indeed not an easy job, especially because the biggest refineries are located in Sumatra and Kalimantan, while the bulk of consumption is in Java. Adding to the problem is the scandal-tainted Balongan refinery which has often suffered technical trouble and is now the focus of an investigation by the Attorney General's Office in connection with alleged corruption in the awarding of a building contract.

This should be an even stronger reason for the government and House of Representatives to amend the oil and gas law in order to allow private refineries to manage their own distribution in the country.

As fuel oil is like the lifeblood of the economy, the demand for this fossil energy will steadily increase along with economic expansion. The problem, though, is that the government or Pertamina simply does not have any money to build new refineries, while foreign investors hesitate to enter this industry because of the Pertamina monopoly in domestic distribution.

The government has so far licensed 10 foreign investment projects in oil refineries, mostly in Java and Sumatra, but none of them have materialized because of the Pertamina monopoly. Without proper access to the domestic market, no foreign investor will be interested in oil refineries in view of the thin margin they can get from refining operations.