Indonesia's oil sector may recover this year

Indonesia's oil sector may recover this year

SINGAPORE, July 13 (AFP): Indonesia's vital oil sector is expected to recover this year on the back of improved economic prospects but drastic reforms are unlikely amid political uncertainty, an industry journal said.

Indonesia's oil consumption is expected to grow by up to two percent this year, reversing a 5.7 percent drop to 845,000 barrels per day in 1998, while oil imports are forecast to rise following the appreciation of the rupiah which made imports more affordable, the Strategist Oil Report said in its issue received Tuesday.

"In addition to the improved economic outlook, Indonesia's offering to the oil industry could include opportunities thrown up by attempts to reform its oil sector, including the proposed privatization of state hydrocarbon company Pertamina," the Singapore-based journal said.

The opening up of the refining sector to foreign investment may include the sale or even the closure of some of Pertamina's nine refineries.

But despite the support for reforms in the industry, "few expect drastic changes for the rest of 1999 given the mammoth task of the country's political rebuilding in the wake of last month's election."

The journal said Pertamina officials, hoping to water down reform proposals, could find a "sympathetic hearing" from the Partai Demokrasi Indonesia-Perjuangan led by Megawati Sukarnoputri that is believed to favor a more nationalistic economic agenda.

Megawati's party is leading the vote count over the ruling Golkar party in the general elections held in June.

On Monday Pertamina president director Martiono Hadianto said a report showing the firm had lost 6.1 billion US dollars due to graft and inefficiency demonstrated the importance of reform.

"I personally see the only way for a change is to reform the attitude, the mindset and actions in Pertamina to face the future," he said at a news conference in Jakarta.

The Strategist noted wide agreement that a "drastic removal of oil subsidies will be politically suicidal."

"On the other hand, any attempts to stop the removal of subsidies could discourage downstream investments from international oil companies as it will reduce the profitability of their ventures," the report said.

The International Monetary Fund (IMF) has acknowledged the sensitivity of the issue and Pertamina's "social role" in providing cheap fuel to the domestic market, it noted.

"The IMF states Pertamina will not be treated as other state companies put on the fast track for privatization. Pertamina will only be subject to a regular international audit of its operation," it said.

Indonesian officials are optimistic that a bill proposing the break-up of the Pertamina monopoly will be passed when parliament meets on July 29.

Jakarta has run into opposition from some Golkar MPs who argue that while the downstream sector should be opened, Pertamina should be reappointed, or a new state-owned firm set up to handle upstream activities, including oil and gas exploration and development.