Pertamina to lose downstream monopoly
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)