Oil refining, retail market to be liberalized: Kuntoro

JAKARTA (JP): A law now being prepared by the government will liberalize the oil refinery sector and open up the retail market in oil products, Minister of Mines and Energy Kuntoro Mangkusubroto has said.

He believed its enactment would lift state oil and gas company Pertamina's monopoly on the country's refinery sector and distribution of oil products on the domestic market.

"The law aims at making the country's oil and gas industry open, competitive and efficient," Kuntoro said on Friday.

The minister said the policy was part of the deregulation package set down in the new oil and gas law, whose draft will soon be deliberated by the House of Representatives.

He said the law would allow the private sector to build refineries in the country, buy crude oil for their refineries and market their products on the domestic market.

The government opened the door for private investors to build refineries in late 1989. However, no investors were interested due to the regulation forbidding private refinery owners from selling their products on the domestic market and Pertamina giving no assurance of the provision of a crude oil supply.

Then president Soeharto eased the regulation in 1997 by allowing private refinery owners to enter into an off-take agreement with Pertamina for the sale of their products on the domestic market, at a price agreed upon by both parties.

Dozens of investors applied for the license to build refineries, but Pertamina was only willing to make the agreements with several companies controlled by Soeharto's family and cronies.

They have not realized their refinery projects due to the economic crisis battering the country since mid-1997.

"Thus, the monopolistic system has created room for collusion, corruption and nepotism," Kuntoro said.

Kuntoro said he would propose President B.J. Habibie replace the 1997 presidential decree with one which would comply with the new oil and gas law.

Pertamina operates nine refineries with combined processing capacity of one million barrels per day.

According to Pertamina data, the country consumes about 50 million kiloliters of fuel per year, between 15 percent and 20 percent of which is imported.

Analysts say investors are discouraged from investing in the country's refinery sector due to heavy government subsidies on fuel prices.

But Kuntoro promised that the government would gradually lift all fuel subsidies through 2002 to allow fuel prices to be determined by the market forces.

The government recently lifted subsidies on jet fuel.

"People need not be afraid that fuel prices will keep increasing once all fuel subsidies are lifted. In fact, refinery owners will vie to cut the prices of their products once competition is in place," Kuntoro said.

He added that the new oil and gas law would change Pertamina into a limited company in competition with other oil and gas companies.

The law would aggressively liberalize the country's oil and gas industry and is expected to be able to accommodate all the possible developments in the world's oil and gas industry "over the next 30 years".

Earlier, Kuntoro said the law would not oblige oil and gas contractors to adopt production sharing contracts (PSC) for their oil and gas operations in the country. They will allowed to adopt any type of contract aside from the PSC system. (jsk)