Pertamina sticks to its guns on outsourcing policy

Pertamina sticks to its guns on outsourcing policy

JAKARTA (JP): State oil and gas company Pertamina said it
would stick to its controversial outsourcing policy, which, among
others stipulations, requires goods and service suppliers to have
minimum capital of US$40 million, despite protests from local
low-budgeted suppliers.

Pertamina's upstream director Iin Arifin Takhyan said the new
policy was important for Pertamina to cut supply costs in the
country's oil and gas industry.

"The new ruling is important for Pertamina's contractors to
maintain their businesses sustainably," Iin told reporters,
following the ceremony marking the handover of the ISO 14001
certificate by German certification firm TUV Indonesia to
Pertamina for its lube blending plant in Cilacap, Central Java.

Iin made the statement following protests by the so-called
Goods and Service Suppliers Communication Forum, which claims to
have 500 local supplier members, that the new outsourcing policy
would wipe them out.

The group said the rulings would only favor financially-strong
foreign suppliers and "kill" local suppliers, adding that local
suppliers only had $10 million in capital at maximum, much lower
than the minimum $40 million capital requirement set in the new
policy.

They specifically named two companies that Pertamina has
production sharing contracts (PSC) with, that is American firm
Vico Indonesia and Spanish Argentinean firm Repsol-YPF, as those
that have implemented the new outsourcing policy.

According to Iin, the PSCs needed such a tough requirement
to ensure that a company responsible for supplying goods and
services for the PSCs was financially capable of fulfilling their
supply commitment.

"The PSCs need to ensure that goods and services for their
day-to-day operations can be provided anytime they want," Iin
said.

"The new policy will (for instance) allow Maxus to cut
operating costs by between $8 million and $11 million annually,"
Iin said, referring to Repsol-YPF, which is still better known
here as Maxus, an American company from which Repsol-YPF bought
the Southeast Sumatra block several years ago.

He assured, however, that the new outsourcing policy would not
deny small local suppliers the chance to supply goods and
services to the country's oil and gas companies as they were
still able to act as sub-suppliers to the large suppliers.

Referring to the existing regulations, Iin said big suppliers
that win supply contracts from local oil and gas companies were
required to prioritize local products as well as local small and
medium scale suppliers.

"We neither want to prioritize efficiency at the expense of
local industry nor promote local industry but neglect
efficiency," he said.

Under existing regulations, the country's oil and gas
companies are required to use so-called "local content" in 50
percent of their operations.

Nonetheless, Iin noted, in response to worries expressed by
local suppliers, Pertamina would require all PSCs to submit
reports on their cost reduction program on a monthly basis.

"We will review the policy after six months to see whether the
new ruling is beneficial to all concerned parties," Iin said.
(03)