Pertamina will still dominate market despite liberalization

JAKARTA (JP): An oil executive predicted on Tuesday state oil and gas company Pertamina would continue dominating the country's downstream sector for several years despite liberalization of the market.

President of national leading oil company Medco Energy Corp J.S. Karamoy, said he believed investors would be unwilling to invest in the country's refinery sector for the next several years given the current economic and political turmoil.

He said investors needed huge capital funds to build a refinery and they would only invest on expectations of a sufficient return. Investors also required ample time to plan the investment, build the refinery and set up distribution and marketing networks.

"Pertamina will not face competition from (multinational) companies in the refinery sector, fuel distribution and marketing area in the next five to eight years," Karamoy said.

Several legislators and analysts have expressed concern that the country's largest state company would gradually forfeit its domestic fuel market to foreign companies. The movement is predicted once the government lifts its decade-long monopoly on the market under the oil and gas bill being debated by the House of Representatives.

The analysts fear foreign companies, which dominate the country's upstream sector, will also control the country's downstream sector.

The government allowed private investors to build refineries as of 1989, but no investors have thus far been interested in making investments due to a regulation barring them from selling their products on the domestic market. Additionally, Pertamina provides no assurance of crude oil supply to them.

Under the oil and gas bill, the government would allow investors to build private refineries and to enter the retail fuel market.

Earlier, Minister of Mines and Energy Kuntoro Mangkusubroto, said the government might maintain the fuel subsidy mechanism to keep fuel prices affordable and uniform across the country, but it would tender the subsidy to ensure that only efficient companies receive it.

Karamoy said he believed most of the fuel subsidy would be given to Pertamina in the next five to eight years due to the absence of competitors in the market.

He said as a result, the subsidy amount would depend on the efficiency program at Pertamina.

"Pertamina will determine how much the government fuel subsidy will be and the subsidy amount will depend on the company's ability to improve its efficiency in the next three to five years."

Currently, Pertamina operates nine refineries with a combined processing capacity of one million barrels per day.

According to Pertamina data, the country consumes about 50 million kiloliters of fuel per year, of which between 15 percent and 20 percent are imported. (jsk)