Indonesia oil deregulation needs caution: Subroto
Indonesia oil deregulation needs caution: Subroto
SINGAPORE (Reuter): The deregulation of Indonesia's oil products market would be done in phases if the country's parliament passes a bill to allow foreign firms to sell directly to the market, former OPEC Secretary General Subroto said yesterday.
"In the minds of parliamentarians, the deregulation will bring about better prices and service for local customers," he told reporters after speaking at a chemical conference.
"But it can't be done overnight. You have to go through a transition period and do it gradually before full deregulation is implemented," he said
Subroto, a former government minister who now chairs the recently-formed private think tank, The Foundation of Indonesian Institute of Energy Economics, was the senior official at the Organization of Petroleum Exporting Countries in the six years to June 1994.
He said Indonesia's period of transition towards deregulation would depend on several factors like the country's infrastructure and how soon consumers are ready to give up subsidies on products like kerosene.
He noted that to some parliamentarians, oil product is a strategic market that should be controlled and managed by the state.
The amendment to the Oil and Gas Industry Act was initially scheduled for debate late last year. The bill has been handed to the office of President Soeharto and is now expected to be debated later this year.
Oil analysts have said that the attempt to allow foreign refiners to sell directly to the market would not happen before 1997.
Subroto said before deregulation could be fully implemented, Indonesia needs to study deregulation in Malaysian and Thailand and the progress of changes in India.
In deciding to deregulate, Indonesia would have to decide whether to have one standard price for the whole country, or a differentiated price policy, he said.
Foreign investors have said that Indonesia's closed market is the main reason why none of the 11 private firms that have been granted permits to build oil refineries has started the projects.
Indonesia badly needs additional refining capacity to meet rising demand for oil products, especially diesel and kerosene, and to limit its growing dependence on imports.
Earlier this month, national oil firm Pertamina announced that the country would import 34.4 million barrels of diesel in fiscal 1996/1997 (April/March), nine million barrels more than in 1995/1996. Kerosene imports would also rise from 14.4 million to 16.8 million barrels.
Recent record highs in diesel and kerosene prices have also alarmed Pertamina which is trying to diversify its import sources and to make its monthly oil products purchases discreet so as not to excite oil markets.
Indonesia is Asia's only OPEC member, but booming demand is expected to turn it into a net oil importer sometime around the turn of the century.