Fri, 05 Dec 2003

Pertamina president defends cancellation of planned fleet

Sandy Darmosumarto, The Jakarta Post, Jakarta

State-owned oil and gas company PT Pertamina defended on Thursday the cancellation of a plan to build its own shipping fleet during a hearing with House of Representative Commission IX on financial affairs.

Pertamina President Arrifi Nawawi told legislators that the cost of the project would be too high for the company.

Nawawi said that under the initial plan, PT Tongkang (Pertamina's shipping subsidiary) was supposed to issue bonds to finance the project.

But he said that "the interest on bonds (around 7 percent to 8 percent for U.S. dollar denominated bonds and around 12.65 percent for rupiah denominated bonds) is too high."

The president feared that his company would not be able to carry the burden of the debt.

In the Bare Boat Hire Purchase (BBHP) arrangement, Tongkang was planning to issue Rp 225 billion (US$26.5 million) and $90 million worth of rupiah and dollar denominated bonds, respectively, on the local and international markets in order to finance ship purchases.

Pertamina currently leases most of its ships.

But some legislators suspected that the leasing contracts were sources of financial leakage.

Legislators in the commission demanded an explanation as to why the new management immediately canceled the ship building plan pioneered by the former management, especially after it spent so much money reaching the target of owning 30 percent of the company's required fleet.

The commission pointed out that the canceled plan would have reduced the costs of oil and gas transportation.

Nawawi commented that "there has never been a study by an internationally reputable shipping consultant over the optimal amount and type of ships needed by the company".

Without a feasibility study, he said, it would be difficult to know whether it would be cheaper to stick with the old practice of leasing and chartering ships.

Pertamina is in the process of appointing a reputable shipping consultant to do the feasibility study, although the Bandung Institute of Technology had already started a similar study.