Pertamina still to market LNG

Pertamina still to market LNG

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The government will maintain the role of state-owned oil and
gas firm Pertamina in marketing the country's liquefied natural
gas (LNG) overseas, according to a senior official at the
Ministry of Energy and Mineral Resources.

Director general of oil and gas Rachmat Sudibyo said on
Tuesday that Pertamina was reliable and in a much better position
to market the country's LNG.

"It's simpler if we appoint Pertamina, which is still under
government supervision.

"If we appoint a private company, it will create a whole host
of difficulties, such as (how to hold) the tender," he told
reporters on the sidelines of a seminar on Tuesday.

It remains unclear if the government will issue a special
decree to maintain Pertamina's LNG marketing role.

Under the new oil-and-gas law, which took effect in November
last year, the government must scrap Pertamina's decade-long
monopoly of the country's oil-and-gas sector, including the right
to market LNG. Pertamina will become a limited liability company
in early 2003, and its supervisory role of the country's oil-and-
gas industry will be transferred to a special government body.

This special body, called the Regulating Body, is not allowed
under the new law to engage in business activities, including
marketing the country's LNG. It will serve only as the
supervisory agency for the country's oil and gas contractors and
the signatory of the contracts awarded to contractors.

Under the existing production-sharing contract system, the
government is entitled to 70 percent of the gas produced by oil
and gas contractors.

Rachmat said Pertamina would remain the marketing agency for
LNG from the Arun plant in Aceh, the Badak plant in East
Kalimantan and the planned Tangguh LNG plant in Papua.

Indonesia is the world's largest LNG exporter with annual
exports of 29 million metric tons to Japan, South Korea and
Taiwan.

At present, Pertamina is also seeking buyers in China and the
Philippines for the planned Tangguh LNG plant.

Rachmat also said the government was planning to provide non-
fiscal incentives to oil and gas companies during the exploration
stage to balance the increase in their tax burden, following the
introduction of 10 percent in value-added tax two years ago.

Rachmat said the incentives were necessary as the Ministry of
Finance had rejected a plea made by oil and gas companies to
exempt them from VAT before commercial production.

The companies had enjoyed exemption from VAT for many years
until the Ministry of Finance lifted the policy to help raise tax
revenues to finance the state budget.

Rachmat also said the government planned the development of
two more refineries in the country worth US$2 billion to increase
the country's fuel production to meet growing fuel consumption.

He said the government had offered to build the refineries for
oil and gas companies, but, so far, it has not yet received any
response.

The government envisaged the two refineries to have an oil-
processing capacity of 125,000 barrels per day respectively, he
said, adding Batam, in Riau; Pare-pare in Central Sulawesi; Tuban
and Banyuwangi in East Java; Sabang in Aceh were the potential
locations for the new refineries.

Today, Indonesia has eight refineries, all owned by Pertamina,
with a combined oil-processing capacity of 1.05 million barrels
per day.