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.