Pertamina upset over royalties
JAKARTA (JP): Members of the House of Representatives (DPR) expressed concern that the high rate of royalties, coupled with the sharp decline in oil prices on the world market, may affect the survival of the state oil company Pertamina.
"It is high time for the government to revise the 60-percent rate of royalties on Pertamina, considering that the company now needs more investments to secure fuel supplies on the domestic market," Tadjuddin Noer Said, a member of DPR's Commission VI, said in a hearing with Pertamina here on Monday evening.
For comparison, the government charges an income tax of only up to 35 percent on other companies.
Besides operating small oil and gas fields, Pertamina is also assigned by the government to supervise the management of fields operated by foreign companies under production-sharing or working contracts. Pertamina is also assigned to refine fuel and distribute it throughout the country on a non-profit basis -- which requires it to pass on any profits it gains to the government and allows it to get a subsidy if production costs are higher than prices.
Pertamina's oil fields contribute less than five percent of the country's daily output of 1.5 million barrels per day, the rest of which are produced by contractors.
"The problem is how to make Pertamina self-reliant in dealing with its own businesses if it is not allowed to sustain adequate levels of profits for the development of the businesses," Tadjuddin said.
Pertamina's president, Faisal Abda'oe, acknowledged that 70 percent of the company's activities are aimed at securing adequate fuel supplies throughout the country and providing revenues for the government, both of which are not profitable for the company.
The government, which expects domestic revenues of Rp 59.73 trillion (US$27.6 billion) this fiscal year, projects to get Rp 12.85 trillion, or 21.5 percent from the oil and gas sector, which is managed by Pertamina.
Restructuring
Abda'oe said Pertamina, therefore, is now conducting five-year restructuring programs, which include efficiency improvement, reduction in the number of employees and the establishment of profit centers, to maintain its profitability while oil prices plunge on the world market.
Oil prices last month declined to a low of around $13 a barrel before rising back to some $17 this week.
Abda'oe explained that the company plans to cut the number of its employees to 31,000 within five years from 46,000 at present, mainly by not replacing retiring employees.
Tadjuddin said the mission given to Pertamina is no longer suitable to current developments and has in fact caused inefficiency.
Minister of Mines and Energy I.B. Sudjana told The Jakarta Post during a break in a hearing with the commission here yesterday that the government is likely to reduce the rate of royalties charged on Pertamina in a bid to improve its performance.
"I expect the government will reduce the obligation to some 40 percent from 60 percent at present," he said, adding that all the changes will depend anyway on the government's deregulation team.
Abda'oe said Pertamina also plans to shift the function of its operational units, which now support the operations of the company, into profit centers which will contribute to Pertamina's revenue.
The planned shift is still being studied, he said.
Tadjuddin and Bambang Warih, another commission member, said that establishing such profit centers will not be effective until the government gives Pertamina greater authority in managing its businesses. (fhp)