Pertamina will still dominate downstream sector: Experts

Dadan Wijaksana, The Jakarta Post, Jakarta

State-owned oil and gas company Pertamina can continue to dominate the country's downstream sector even when new players enter the market in 2005 to benefit from the planned liberalization of the sector, experts said.

Expert Kurtubi and legislator Agusman Effendi shared the view that Pertamina had everything necessary to compete with any newcomers. They said that with its facilities and infrastructure, Pertamina could produce and deliver the products at highly competitive prices.

"Pertamina is ready. By my calculations, I do not think there is one single player, no matter how big it is, that can compete head-on with Pertamina in the country's downstream sector," Kurtubi told The Jakarta Post on Monday.

With its supporting infrastructure, he said, Pertamina could reap profits by setting its fuel prices slightly above the production cost, which would still be way below the market price.

"At that level, no companies will be able to compete because they will be experiencing losses," he said.

Agusman, deputy chairman of House of Representatives Commission VIII for energy affairs, also saw no problems for Pertamina in the downstream sector even with the arrival of new competitors.

"Pertamina has more than 20 years of experience in the sector. They have also a strong infrastructure, so there is no reason they will be left out once the new players come in," Agusman told the Post.

"The challenge for Pertamina is how to aggressively improve its efficiency to better compete."

The two were commenting on plans by various foreign companies to enter the downstream sector -- covering crude processing activities, gasoline and fuel transportation, storage and marketing -- which will be liberalized by 2005 as mandated by Law No. 22/2001 on oil and gas. The move will put an end to Pertamina's decades-long monopoly in distributing fuel across the country.

While major names such as ConocoPhillips and ChevronTexaco's Caltex are reported to have made plans to enter the sector, Malaysia's state oil and gas giant Petroliam Nasional Berhad (Petronas) has moved a step ahead of them.

Petronas, already a player in the upstream sector here, said on Sunday it would market its two brands of lubricants through a local unit, PT Petronas Niaga Indonesia, with other lubricant brands to follow.

It also said it would spend US$100 million a year to develop its downstream business in Indonesia, which would include building and operating gasoline pumps.

Both Kurtubi and Agusman warned that Pertamina's competitive edge could be significantly hurt if the government sold several refineries being operated by Pertamina.

"If the plan (to sell refineries) is realized, Pertamina will have to shoulder much more expensive costs. In another words, it would destroy Pertamina ...," he said.

The sale of a number of refineries currently operated by Pertamina to foreign investors was proposed by the World Bank last year. The bank said the move would create a more competitive environment in the downstream sector.

It said that unless the government took over some of the refineries and sold them to other companies, it would be very difficult for any new players to overcome Pertamina's domination of the sector. If Pertamina maintained control of all the refineries, no investors would be willing to enter the sector, the bank said.

Under the World Bank's proposal, Pertamina would be allowed to keep only three refineries in Balikpapan, East Kalimantan; Balongan, West Java; and Musi, South Sumatra. Six others refineries would be sold.

The bank said that of the nine refineries currently operated by Pertamina, only two, including Balongan, belonged to the company, and that the others were built with state funds.

List of RI's refineries ----------------------------------- Name Capacity

(barrels per day) ----------------------------------- Cilacap 388,000 Balikpapan 260,000 Balongan 125,000 Kasim 10,000 Cepu 3,800 Pangkalan Brandan 5,000 Dumai 120,000 Sungai Pakning 50,000 Musi 135,000 ----------------------------------- Total 1,057,000 ----------------------------------- Source: Pertamina