In anticipation of free market era Technically not yet prepared
In anticipation of free market era Technically not yet prepared
Hendarsyah Tarmizi, The Jakarta Post, Jakarta
The opening of Shell Indonesia's first fuel station in
Karawaci, Tangerang recently has marked a new era in the
country's fuel market history, once solely controlled by state-
owned oil and gas company Pertamina.
The oil giant is the first company outside Pertamina's network
to sell fuel to Indonesian consumers. No wonder, if Shell's debut
in the domestic fuel market has received a positive response from
the public.
Although its gas station sells only high-grade (non-
subsidized) fuel products, generally used only for expensive
cars, many owners of ordinary cars from outside the Karawaci area
come and fill their fuel tanks at the new gas station only to
experience the difference in the service provided by the new fuel
distributor.
"We are happy with the results. Motorists are excited about
our presence and are happy to experience our quality fuels and
good service," Fathia Syarif, the corporate communication
manager of Shell companies in Indonesia, told The Jakarta Post..
According to Fathia, the opening of Shell's first fuel station
in Karawaci constitutes a part of the company's long-term
strategy to tap the country's huge fuel market.
She was reluctant to say when and where the company's next
fuel stations will be opened. But Shell Indonesia's vice
president for external and business affairs Wally Saleh said
earlier than the company would open two more by the end of this
year around Jakarta.
With more than 220 million people, Indonesia is among the
largest fuel markets in the world. The fuel demand has continued
to increase from year to year in line with the increase in the
number of vehicles and expanded public transportation facilities.
This year, the country's total fuel demand is expected to
reach to 65 million kiloliters or (65 billion liters), an
increase from about 62 million kiloliters in 2004.
Pertamina estimates that the national fuel demand will remain
stable at 65 million kiloliters next year. Subsidized fuel will
account for about 41 million kiloliters of the total, while non-
subsidized fuels will be about 24 million kiloliters, including
those sold directly to corporate buyers.
With such a huge demand, the opening of the fuel retail market
is unquestionably a big business opportunity for newcomers.
Hundreds of companies have applied for licenses to enter the
business. And up to now, at least 140 companies have received
provisional licenses to distribute fuel products. They include
foreign companies such as Petronas of Malaysia, Shell Indonesia,
BP, ExxonMobil and Caltex/Chevron Texaco. Local companies
intending to enter the fuel retail business include PT Sigma
Rancang Perdana, PT Pandu Selaras, PT Elnusa Petrofin, PT Elnusa
Harapan, PT Krida Petragraha and PT Raven Sejahtera.
Under the new Oil and Gas Law No. 22/2001, the exclusive
rights awarded to Pertamina to distribute fuels in the country
will end within four years from the implementation of the law --
or in November this year.
But the government has extended Pertamina's rights to sell
subsidized fuels, which account for more than 90 percent of fuels
sold through public gas stations, until Dec. 31. This means that
private oil companies including foreign fuel retailer operators
are allowed to take part in the distribution of the subsidized
fuels only from January next year.
Tubagus Haryono, the head of the oil and gas downstream
industry regulatory body (BPH Migas) said recently that the
guidelines for the distribution of subsidized fuels would be
based on Presidential Decree No. 71/2005.
The assignment of the new distributors will be made through
two mechanisms - a competitive bidding and direct appointment.
"The ruling on direct appointment and competitive bidding is
being prepared," he told a recent hearing with the members of the
House of Representatives.
A company intending to be a distributor of the subsidized
fuels will, for example, be required to have a distribution
network not only in lucrative markets such as on Java but also on
Sumatra and other provinces.
"We will not issue a permit to those intending to distribute
subsidized fuels only in Java. It is not fair," Tubagus said .
The agency earlier promised to issue the ancillary regulations
on the assignment of the new fuel distributors in the middle of
this month. But until now, the regulation has not been issued.
It seems that Indonesian motorists will have to be patient
given the complexity of the regulation and procedures that should
be met before the new fuel retailer is permitted to operate,
especially for the distribution of regular fuels which are now
heavily subsidized by the government.
... Tehnically not prepared yet
The problem, in fact, is not only related to the delay in the
government regulation on the assignment of the new distributors.
"I think, technically, the new distributors will be ready only
by 2007," said Edi Purnomohadi, a senior official at BPH Migas.
"It is therefore almost certain that Pertamina will be
reappointed to handle the distribution of subsidized fuels in the
country in 2006.
Shell is one of a number of oil companies which have indicated
their interest to take part in the distribution of the highly
subsidized regular fuels.
But the company has to wait until the uncertainty about the
rules governing the sale of such fuels is cleared to realize its
plan.
"Once we are able to, we will offer these products with the
same high quality and quantity standard you can expect from
Shell," Fathia said.
"What we need now is clarity on the implementation of the
governing regulation that are so important for any new players
with serious investment plans," she added.
For Pertamina, which has been assigned to handle the
distribution of subsidized fuels for more than 30 years, the
removal of the PSO is not really bad news. In fact, the removal
of the PSO, often considered a social obligation, will enable the
company to focus on profit-oriented activities.
Pertamina has often been criticized for selling low-grade
fuels, but as a whole, the company has successfully carried out
the task. Pertamina has, for example, been able to apply a single
price for all types of fuels it sells in the country.
Motorists, wherever they are in the archipelago, can buy fuel
from Pertamina's gas stations at the same price. To apply a
single price in a vast country like Indonesia is certainly not
easy.
At present Pertamina operates more than 3,000 gas stations in
the country, mostly under a franchising scheme with private
companies. The fuel station owners generally receive a sale
margin of 4 percent from Pertamina.
According to Pertamina's commercial and marketing director
Arie Sumarno, the services provided by the existing gas stations
are still mostly below standard.
"That's why improving the services of the existing fuel
stations is Pertamina's main agenda to enable it to compete with
the new fuel retail operators," he said.
Besides improving the services provided by its retail
partners, Pertamina has also built a number of its own stations
called Company Owned Company Operated (COCO) station.
At present, Pertamina operates about 24 COCO stations which
were built in accordance with international fuel retail
standards. They are mostly located in strategic locations in the
country's major cities and supported by complete supporting
facilities such as a mini market or a convenience store.
In order to operate the stations more professionally,
Pertamina has established a special subsidiary PT Pertamina
Retail to take charge of its fuel retail business. The new
subsidiary plans to build 200 COCO stations in five years.
Analysts, however, warned that Pertamina could easily lose its
strong market foothold in the fuel market if it fails to forge
stronger relations with its retail partners, the owners of most
of its fuel stations.
The new retail operators can easily lure the gas stations
currently under the control of Pertamina, by merely offering a
higher sale margin.
But above all, the privatization of the country's fuel market
will benefit not only the new players but also Pertamina.
Pertamina will no longer operate as an extension of the
government so it can reap the benefits of its retail business
while for new players, entering the fuel market is a lucrative
and lasting investment.
More importantly, with the privatization of fuel distribution,
people will have the option to buy fuel from outlets they
consider provide better services.