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)