Pertamina asks government to review gas subsidy

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)