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.