Pertamina fixes cash mess, guarantees fuel supply

The Jakarta Post, Jakarta

State oil and gas company PT Pertamina promised that there would be no disruptions in the domestic fuel supply, saying it had resolved its financial problems after the government agreed to pay a fuel subsidy based on the actual price of oil.

Pertamina president director Ariffi Nawawi said on Monday the government would pay up to Rp 46 trillion (US$4.96 billion) in fuel subsidies this year, compared to Rp 14.5 trillion originally allocated in the 2004 state budget.

The higher subsidies are a consequence of the current surge in international oil prices to about $40 per barrel. The state budget assumes an average oil price of $22 per barrel.

"The government will reimburse us for the disparity in the oil subsidy from January to April at the price of $32 per barrel, hopefully in June. The government has also agreed on a new subsidy mechanism," Ariffi said.

The new mechanism stipulates that the government will pay 95 percent of the subsidy if the price of crude oil is $33 or more per barrel, and pay 90 percent of the subsidy if the price is under $33 a barrel. The remainder will be paid after an audit by the Supreme Audit Agency.

Previously, the government paid only 70 percent of the subsidy.

"The reimbursement of the money that we paid to cover the disparity between the oil price and the subsidy, plus Rp 2.7 trillion left over from last year's subsidy, will hopefully restore our financial soundness," he said.

Ariffi also urged the government to double its fuel management and distribution fee -- currently 20 US cents per barrel -- and proposed a marketing fee for crude oil and liquid natural gas (LNG) to keep the company's cash flow secure until the end of the year.

Pertamina imports 30 percent of the crude oil used for its refineries. It imports 150,000 barrels of crude oil and 300,000 barrel of fuel daily.

Pertamina has been having financial difficulties lately as it has attempted to cover the gap between the assumed oil price of $22 a barrel stated in the 2004 state budget, and the real oil price of about $40 a barrel.

Separately, Minister of Finance Boediono said on Monday the 2004 state budget could increase by between Rp 1.6 trillion and Rp 1.9 trillion because the fuel subsidy was projected to triple to Rp 46 trillion.

In the 2004 budget, the government has targeted a deficit of Rp 24.4 trillion, or 1.2 percent of gross domestic product.

Higher-than-expected oil prices have had a mixed effect on the country, which is both an oil exporter and importer.

While it can expect windfall profits from exporting oil, it will also have to spend more money on subsidies for imported fuel.

The central government is responsible for covering the cost of fuel subsidies, but revenue from oil exports must be shared by the central government with oil and gas-producing provinces.