Pertamina buys oil with international L/C

Pertamina buys oil with international L/C

TOKYO (Reuters): Indonesian state-owned oil firm Pertamina has made one of its first imports of crude oil supported by a letter of credit (L/C) from an international bank, oil trade sources said yesterday.

The break through comes after several deals fell through because crude and oil product sellers were not willing to accept L/Cs from domestic Indonesian banks.

Bankers and oil traders said the deal represented a small step by Indonesia in re-establishing normal international trade flows after the financial and political upheaval of the past year.

"The problem is not one cargo. The problem is much broader than that. The problem is to re-establish a regular trade flow," said one banker.

"This could be the start," he said.

Oil traders said British Petroleum Co Plc sold 600,000 barrels of Malaysian Tapis crude oil to Pertamina.

The deal included a letter of credit in favor of BP issued by an international bank, the trade sources said.

Companies worldwide have treated trade with Indonesia with extreme caution because of the 85 percent fall in the rupiah and the recent political upheaval.

A letter of credit issued by an international bank would be perceived as largely shielding the seller from Indonesian financing risk.

Indonesia is Asia's only member of the Organization of Petroleum Exporting Countries (OPEC).

It is a net exporter of oil, but imports some types of crude to suit refinery needs and some oil products to fill domestic supply gaps.

Before the resignation of President Soeharto in May, Pertamina imported oil through two affiliates. But now it has effectively severed those contracts because the two affiliates had links with Soeharto.

That has left Pertamina to trade directly with the international market for the first time.

Traders said the BP deal is one of the first achieved by Pertamina using an international L/C.

Pertamina has purchased 1.5 million barrels of Malaysian crude oil for July lifting from Malaysian state-owned oil firm Petronas.

But the deal was on open credit so that a traditional commercial L/C was not needed.

It bought its first gas oil cargo in direct trading from a Middle East national oil company. The sellers was happy with the L/C involved, although it was not clear if the L/C was issued by Indonesian banks or international ones.

However, Australia's The Broken Hill Pty Ltd pulled out of a deal to sell Kutubu crude to Pertamina because it was not happy with the L/C arrangements.

Mobil Corp canceled a deal to sell Nigerian Qua Iboe to Pertamina, but sold 600,000 barrels of Kutubu, accepting L/Cs from domestic banks.

Sellers are now likely to scrutinize the details of the BP deal, once they emerge, to determine if other imports can be achieved.

Bankers said Indonesia has effectively stopped trading since the economy collapsed and President Soeharto resigned.

The government has been fully involved in securing a deal with the International Monetary Fund (IMF) but will increasingly look to build mechanisms, such as trade finance, to secure the short term imports and exports of the country.

"It's a question of starting up something which has completely stopped. It is essential for Indonesia to restart the financing of trade, which has disappeared completely," one banker said.