Pertamina will still dominate downstream sector: Experts

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