Pertamina may soon be allowed to buy local oil at market prices
Rendi A. Witular and Leony Aurora The Jakarta Post/Jakarta
The government has instructed state oil and gas firm PT Pertamina to reduce crude oil imports and instead increase the use of locally produced oil to help minimize fuel subsidy spending.
The Ministry of Energy and Mineral Resources' director general of oil and natural gas, Iin Arifin Takhyan, said that by buying local crude, Pertamina would reduce its transportation costs, and thereby production costs. The firm's production costs have traditionally been employed by the government to calculate the size of fuel subsidies.
"Buying crude on the local market will be much cheaper than from overseas, especially as regards transportation costs. This will help the government save some money on fuel subsidies," said Iin after meeting Vice President Jusuf Kalla on Thursday.
The meeting was also attended by energy minister Purnomo Yusgiantoro, Pertamina marketing and trading director Ari Soemarno, the Upstream Oil and Gas Executive Agency (BP Migas)'s deputy for planning, Zanial Achmad, and BP Migas head of marketing Djoko Harsono.
Iin said it had been agreed at the meeting that the government would immediately allow Pertamina to buy oil from local producers based on international market prices.
The oil would be shipped to Pertamina refineries in Cilacap, Central Java, and Balikpapan, East Kalimantan, for refining, he added.
At present, the Cilacap refinery has a capacity of 348,000 barrel per day (bpd), while the Balikpapan refinery has a capacity of 266,000 bpd.
However, Iin did not say if the Ministry of Finance had agreed to the plan, since it can only allow Pertamina to buy crude from local producers based on the Indonesian Crude Price (ICP).
Pertamina has estimated that buying crude locally would save between $3 and $5 in transportation costs per barrel. The firm plans to buy some 110,000 bpd of crude from local producers over the short and medium terms.
The government expects to save up to $550,000 per day through maximizing the use of locally produced oil.
Last year, the country produced 1.09 million bpd of crude oil and condensate, with some 593,600 bpd of crude processed in local refineries. Meanwhile, Indonesia imported 400,000 bpd of crude and 300,000 bpd of fuel products in 2004.
Meanwhile, Djoko said that Kalla had asked the finance ministry to allow Pertamina to buy the crude based on international market prices.
"The Vice President has requested the ministry to approve the new scheme involving the of buying oil from local producers," he said, adding that Pertamina was still waiting for approval from the ministry before it would be able to buy the locally produced crude at market prices.
Following the granting of approval, the state firm would then have to negotiate with each producer to determine prices, he added.