Pertamina 'still need government's help'

By Johannes Simbolon

NUSA DUA, Bali (JP): State-owned oil and gas company Pertamina said on Wednesday it needed time and the government's help to enter the era of open competition in the downstream oil sector.

Pertamina processing director Samto Utomo said the government should formulate regulations to support Pertamina's refineries, and provide the company the time to raise the required funds for its operations before opening the domestic oil and gas market to foreign players.

"Rapid liberalization can destroy the domestic industry in general and domestic refining in particular," Samto said at Indonesian International Oil and Gas Exhibition '99.

The warning came as the House of Representatives and Minister of Mines and Energy Kuntoro Mangkusubroto are debating a new oil and gas bill which would liberalize the country's downstream oil and gas sector.

The House and Kuntoro continue to disagree over several issues pertaining to the upstream sector, but they have agreed to liberalize the downstream sector.

Under existing regulations, Pertamina holds a monopoly on the distribution of fuel on the domestic market.

Samto said supplying fuel to the domestic market accounted for between 70 percent and 80 percent of Pertamina's total turnover, while the state company ran its refineries on a no-loss and no- profit scheme to carry out the government's mission of providing subsidized fuel to the public.

"Pertamina only receives a fee of US$0.20 per barrel, subject to a 60 percent tax, for its efforts in processing crude oil," Samto said, adding that Pertamina's refineries currently lacked the funds to compete with foreign refineries.

Pertamina operates eight refineries with a total processing capacity of one million barrels of crude oil per day.

During the precrisis period, Pertamina imported between 15 percent and 20 percent of the country's total fuel consumption of 52 million kiloliters per year.

Kuntoro and many industry analysts have criticized Pertamina's refineries for their inefficiency. Pertamina was considered by many to be the country's symbol of corruption, collusion and nepotism during former president Soeharto's rule, due to the involvement of Soeharto's family and associates in the company.

Kuntoro earlier said he would not delay liberalizing the downstream oil and gas sector, arguing the competition would force Pertamina's refineries to improve their efficiency.

Samto said Pertamina embarked on a cost-reduction program in 1994, which resulted in the reduction of its workforce from 48,000 in 1994 to 28,000 today. Pertamina has no plans to further reduce the number of its employees.

He said Pertamina's refineries were currently overstaffed, but this would not affect their competitiveness against foreign refineries in Singapore, since "the salary of Indonesian workers is much less than those in Singapore".

Samto warned that once the domestic market was liberalized, foreign refineries in the region, particularly in Singapore, would employ all available business strategies to control the market.

"They will be ready to cut fuel prices and suffer losses for some time to control the market. And the losses are no problem for them because they can make up the losses with profits from their operations elsewhere," Samto said.

Gas

Meanwhile at the exhibition, Organization of Petroleum Exporting Countries (OPEC) secretary-general Rilwanu Lukman touched on several challenges facing the world's downstream oil and gas sectors.

He said global downstream sectors continued to face over- capacity, low margins and weak product demand, problems which had existed for the past several years.

This forced the refining sector to cut costs by a number of methods, including acquisitions, mergers and forming alliances and joint ventures, Lukman said.

The global refining sector was also facing pressure from environmentalists to reduce carbon dioxide emissions, he said.

Refineries in Europe, Asia Pacific and the United States will be restructured to meet new environmental requirements, he said.

However, he said environmental considerations also favored the use of natural gas in industrial applications, particularly in power generators, as a cleaner alternative to coal.

The growth in global natural gas consumption is predicted to be around 2 percent per year, and natural gas is expected to substantially increase its share in the global energy mix, Lukman said.

Lukman said OPEC countries -- Indonesia, Algeria, Nigeria, Iran, Qatar and Saudi Arabia in particular -- would benefit from this movement given their ample natural gas reserves, low development and production costs and proximity to rapidly growing markets.

"Thus OPEC has great potential for growth in the traditional and emerging export markets for natural gas," he said.

The government's data say Indonesia, which is currently the world's largest liquefied natural gas exporter, has natural gas reserves of 136.4 trillion cubic feet.

The domestic consumption of natural gas is still low, but the government plans to promote the use of natural gas.