Pertamina says price of private fuel negotiable

JAKARTA (JP): State-owned oil and gas company Pertamina will negotiate with investors interested in building refineries in Indonesia over the price of fuel it would buy from them, a company executive said yesterday.

Pertamina Junior Director for Refineries Samto Utomo said Pertamina would negotiate with private refineries about their sales prices because a flexible pricing scheme was needed to encourage private investors in oil refinery.

"Through the negotiation, we could agree on fuel prices acceptable to Pertamina and commercially feasible to refinery investors," Samto was quoted by Antara as saying.

He was commenting on the recent Presidential Decree No 31/ 1997 on private investment in oil and gas refineries.

According to the new decree, private refineries can be set up by foreign and domestic private companies in joint ventures with Pertamina.

The decree stipulates that Pertamina remain the sole distributor of fuel in the domestic market, but private refineries can sell their products to Pertamina or to the international markets.

The decree also states that Pertamina will enter long-term contracts to buy fuel from private refineries at prevailing international market prices.

Samto said the stipulation on international prices might discourage investors from investing in refineries.

"This is because fuel prices on the international market are pegged to the Medium Oil Platt's (MOP) standard, which is relatively lower than the government-set fuel prices for the domestic market," Samto said.

He said Pertamina was willing to negotiate with investors to find an economical price for their fuel.

"If investors want prices higher than the MOP level, we want to know how high the surcharge will be and the reason for such a price level," Samto said.

Based on international prices, investors would get a return on investment (ROI) of only 4 percent, while Pertamina -- as a nonprofit oriented enterprise -- put its ROI at between 8 percent and 12 percent, he added.

"No wonder none of the private oil refinery projects already licensed have been realized so far," he said.

Samto said since the opening of the oil refining industry to private investors through a 1992 presidential decree, several investors had received licenses to develop refineries. They include PT Buana Ganda in Probolinggo, Asia Pacific in Situbondo, both in East Java, Sabang Oil Refinery and Nusamba in Lombok.

Pertamina would start negotiations with one of these investors next month, he said.

Pertamina currently operates eight refineries with a combined capacity of 989,500 barrels a day.

Pertamina said domestic fuel consumption grew 6 percent to 50.19 million kiloliters in 1996/1997, 22.5 percent or 11.34 million kiloliters of which were imported.

Pertamina's chairman Faisal Abda'oe earlier said Indonesia needed additional refineries with a combined capacity of 350,000 barrels per day by the year 2000. (jsk)