Pertamina asks government to review gas subsidy

JAKARTA (JP): The state-owned oil company Pertamina urged the government yesterday to review gas utilization subsidies, saying that they are likely to discourage gas exploration and disturb Indonesia's gas supply.

"If we leave it in such a way we'll be in a very difficult condition in five years," Pertamina's president, Faisal Abda'oe, said in a hearing with the House of Representatives Budgetary Commission.

Abda'oe suggested that leaving the subsidy unchanged will cause a shortage in gas supplies within five years. This will disturb the government's efforts to diversify energy sources away from oil, which is still dominant in the country.

Abda'oe said that 88 percent of the country's gas supplies currently comes from private companies under production sharing contracts with Pertamina, while only 12 percent is produced by the state oil firm.

According to the latest Pertamina data, Indonesia has total estimated natural gas reserves of 266.7 trillion cubic feet, of which 114.9 trillion cubic feet are proven. The country's average gas production is 2.9 trillion cubic feet per year.

"If we continue to subsidize the domestic sales of gas, we will no longer be able to generate funds to invest in gas exploration. This will result in a supply shortage," Abda'oe said.

He said that last year gas subsidies amounted to US$240.2 million, of which some $201.2 million was provided by Pertamina. The other $39 million -- through gas sales to fertilizer companies -- was borne by the government.

Abda'oe said gas prices in the country range between $1 and $3 per million British thermal units (BTU), with the cheapest price set for fertilizer companies and the most expensive for cement manufacturers.

Isworo Suharno, the gas division chairman of Pertamina's Directorate of Exploration and Production, said that the prices are lower than production costs.

He added that the absence of an integrated pipeline system in the country pushes up the costs of gas distribution.

Profit

At yesterday's hearing, which was chaired by I Gde Ardjana of the Indonesian Armed Forces faction, Abda'oe noted that 39 foreign and local companies have expressed interest in establishing oil refineries in Indonesia.

"But they are facing obstacles in building the refineries," he said.

"The investors expect Pertamina to guarantee their long term supply of crude oil. They also have asked the government to allow them to sell their products on the domestic market," he said.

But the investors' expectations cannot yet be realized because Pertamina is the only company with the right to manage oil distribution in the country.

He said that his company welcomes the participation of private sector companies in the establishment of oil refineries to meet increasing domestic market demands.

Abda'oe reported that Pertamina's net profit shrank by 1.23 percent to Rp 566.8 billion (US$245.37 million) last fiscal year due to an increase in production costs.

The company's total revenue last fiscal year increased to Rp 36.9 trillion from Rp 31.7 trillion in 1994/95, while its production costs rose to Rp 27.8 trillion from Rp 23.2 trillion.

During the hearing, a number of commission members asked Pertamina to liquidate its money-losing subsidiaries.

But Abda'oe noted that his company is watching their development over the next year. "After the one year period we'll decide whether to liquidate them or not," he said.

After liquidating its subsidiary PT Patra Tani last July, Pertamina still has PT Elnusa, PT Patra Jasa, PT Pelita Air Service and PT Tongkang. The last two subsidiaries posted a loss of Rp 20.6 billion and Rp 8.7 billion respectively last fiscal year. (13)