Pertamina plans to return to financial market after long ban
Moch. N. Kurniawan, The Jakarta Post, Jakarta
After a thirty-year ban, state oil and gas company Pertamina may return to commercial banks to raise funds for its expansion and exploration programs.
The prospect of commercial borrowing was expressed Wednesday by Pertamina's upstream director Iin Arifin Takhyan during his comments regarding the House of Representatives' decision to increase the government's dividend from the state company to 50 percent from 10 percent at present, starting next year to boost the state budget.
The proposal to raise the government's dividend was made by the House on Tuesday and Minister of Finance Boediono said Wednesday the government had officially agreed with the proposal.
The rise in the government's dividend will obviously mean a decrease in Pertamina's overall profit margin.
"We have to live with the decision... we will seek loans to finance our expansion although it won't be that easy," Iin told the Jakarta Post on Wednesday.
At present, according to Law No.8/1987 on Pertamina and government regulation No.18/1987, the government is entitled to 60 percent of Pertamina's operating profits plus a 10 percent dividend from the remaining 40 percent of profits.
Iin noted that the plan to seek commercial loans had to be approved by Pertamina's board of commissioners, which consists of several government ministers.
Pertamina has been banned from seeking commercial loans by the government for nearly thirty years following a scandal in the mid 1970s when it was headed by founding president Ibnu Sutowo.
Pertamina borrowed some US$10.5 billion to finance a fleet of oil tankers, but was unable to pay off the loan. The loan scandal pushed the company to the brink of bankruptcy.
Iin said that should the government reject the proposal, Pertamina would be forced to shelve or cut its expansion programs, but he didn't provide any details.
"We may not be able to reach our oil production target of 290,000 barrels per day (bpd) in 2006," he said.
Pertamina currently produces about 80,000 bpd of oil from its own fields and joint venture operations.
According to Iin, Pertamina has planned to put billions of dollars into upstream and downstream investment between 2002 and 2006.
In the upstream sector, for example, Pertamina plans to acquire some assets from the Spanish-Argentinean firm Repsol-YPF for US$270 million, build a $200-million LPG plant in South Sumatra, invest $92 million in the Cepu block owned by American firm ExxonMobil and $78 million in various projects in Vietnam.
In the downstream sector, Pertamina will also invest about $1.5 billion to develop its Balongan refinery, $805 million to build 38 new fuel tankers and $434 million to increase capacity at its Dumai refinery.
Pertamina is aggressively expanding its business in order to compete with major oil companies in the country as its monopoly in the oil and gas industry will be eliminated with the enactment of a new law soon.
The House is expected to pass the bill into law next week.
Separately, energy analyst Kurtubi said that the decision to increase the government dividend would diminish Pertamina's ability to develop new business.
"The government has repeatedly said they want to see Pertamina grow bigger and stronger. But now they reduce the firm's profit. What kind of measure this is?," he said to the Post.
He also dismissed the dividend decision as minimal, saying it would not boost the state budget significantly.