Pertamina replies

With regard to your Jan. 14 article on the hike of fuel prices written by Parulian Sihotang and Alex Russell from the Department of Accountancy and Business Finance at the University of Dundee in the UK, we feel it necessary to convey the following points:

We feel that the article has harmed our company's image because the writers referred to out-of-date data from the World Bank based on the 1988-1999 survey to explain about the hikes set by the government on Jan. 1, 2003. This is, of course, irrelevant as Pertamina has made significant changes over the last three years.

Efficiency has been, and will always be, part of the company's policy. To evaluate the efficiency of Pertamina's refineries, Shell Global Solution (SGS) conducted a benchmark study on other refineries abroad.

Overall production costs of Pertamina refineries in 2000 stood at US$1.10 a barrel and in 2001 at about $1.03 a barrel, which is still within the range of prices of other refineries abroad of 70 cents to $2.50 a barrel. Pertamina thus belongs to the 30 percent share of the best group of refineries with operational costs of below $1.10 a barrel.

Production costs heavily depend on the price of crude oil, reaching 91.68 percent of costs, which is beyond Pertamina's control and processing units. Therefore, it is unreasonable to relate the hikes with the inefficiency of Pertamina's refineries.

So far Pertamina calculates the basic price of fuel based on the average price for all types of fuel subsidized by the government (the regulated price for five types of fuel).

Pertamina's costs have also decreased significantly from Rp 1,810 a liter in 2001 to Rp 1,627 a liter in 2002 and is expected to go down to Rp 1,492 a liter in 2003.

In distribution and sales in 2002, Pertamina succeeded in reducing sales of subsidized fuels to 52.6 million kilo liters. This figure is lower than the maximum limit set by the 2002 state budget of 52.7 million kilo liters. In addition, Pertamina managed to cut half of the 0.5 percent of tolerable losses set by international standards in fuel distribution.

Based on data from the Development Finance Comptroller (BPKP), Pertamina's supply loss in 2001 stood at 0.25 percent of the 88,707,945 kilo liters of fuel distribution. The success represents efficiency measures taken by Pertamina given the fact that when there is a loss above the tolerable limit, the margin is removed from the cost of subsidized fuels and becomes the burden of Pertamina.

RIDWAN NYAK BAIK, Corporate Service, Public Relations Manager, Pertamina, Jakarta