Pertamina to lose downstream monopoly
JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto said yesterday the government is preparing a bill to end the monopoly of the state oil and gas company Pertamina in domestic oil and gas refining, fuel distribution, and marketing.
Kuntoro said the draft law on oil and gas, which is to be submitted to the House of Representatives next month, would open the oil and gas downstream sector to private companies.
Pertamina currently holds a monopoly on oil and gas refining, fuel distribution and marketing under 1971 law No. 10 on Pertamina.
The new law will eliminate all the privileges given to the state oil and gas company and will change the company's status into a limited company.
"Free competition will boost efficiency and in turn lower the price of the commodities," Kuntoro said.
He added the law was also aimed at making Pertamina an efficient and profitable company.
He did not, however, specify when the law might be implemented but Indonesia, as a member of the Association of Southeast Asian Nations (ASEAN), should open its oil and gas downstream sector by 2003 under the ASEAN Free Trade Area (AFTA) scheme.
The government first eased the monopoly in the early 1990s by allowing private firms to develop refineries in the country.
But the move failed to attract investors since the government maintained Pertamina's monopoly on fuel marketing and distribution in the domestic market. The private refineries were forced to export their products.
The government further tried to encourage private investment in 1997 by allowing private refineries to market their products domestically through Pertamina.
The policy encouraged dozens of companies to attempt to take advantage of the change but only companies associated with ex- president Soeharto were given approval to build refineries under the new scheme.
The companies included PT Asia Pacific Petroleum Refinery Indonesia, partly owned by ex-President Soeharto's son Bambang Trihatmodjo, which planned to build a US$3.2 billion refinery in Situbondo, East Java; PT Buana Ganda Perkasa, partly owned by Soeharto's half brother Probosutedjo, which planned to set up its $3.5 billion plant in Probolinggo, East Java; and PT Pusat Minyak Indonesia Timur, partly owned by Soeharto's close friend Mohammad "Bob" Hasan, which planned to build a $1.25 billion plant in Lombok.
However, the monetary crisis which has been sweeping through the region from mid-last year has forced them to put the projects on hold.
Indonesia consumes 52 million kiloliters or 325 million barrels of fuel per annum, between 15 percent and 20 percent of which are imported due to the limited capacity of Pertamina's refineries.
Some analysts say the proposed law won't attract investors to enter the domestic market given the fact that domestic fuel prices are much lower than world market prices due to the huge government subsidies.
They say investors will enter the domestic market only if the subsidies are eliminated and fuel prices are determined by the market, instead of the government.
Under the newly announced revised state budget for 1998/1999, the government is to provide fuel subsidies amounting to Rp 27.5 trillion, or $2.6 billion on an assumed exchange rate of Rp 10,600 per dollar.
Kuntoro however denied such speculation, saying the government could still determine fuel prices for the next few years but that it would attract investors by incorporating fuel subsidies into the open bidding process.
"Companies which ask for the lowest subsidies will be given the go-ahead to market their products in the country while enjoying some assistance from the government," he said. (jsk)