Pertamina woes linked to hasty liberalization: Experts

Pertamina woes linked to hasty liberalization: Experts

Fitri Wulandari, Jakarta

The current financial woes suffered by state oil and gas
company Pertamina following a hike in oil prices is linked to
hasty liberalization in the country's oil and gas sector,
according to experts.

Noted economist Mohammad Sadli and energy expert Kurtubi said
over the weekend that while the government ended the decades-long
monopoly of Pertamina and turned it into a limited liability
company last year (dismantling its regulatory functions), the
government failed to adjust the gasoline pricing policy.

"The transition of Pertamina into a limited liability company
has been shrouded in political motivations. It is not beneficial
because Pertamina is responsible for distributing oil-based fuel
but the government controls the prices," said Sadli, who was an
energy minister in the 1970s.

"Logically, the (current) gasoline prices must go up. But
politically, the government is unable to do that," Sadly added.

Oil prices in the international market last week surged to a
21-year high of more than US$41 per barrel, putting heavy
pressure on Pertamina's finances as it had to import crude for
the country's needs at the market price, but sell it at home at
lower prices as dictated by the government.

The fuel subsidy of around Rp 14.5 trillion provided by the
government in the current budget is far from sufficient to cover
the higher expenses, Pertamina has said.

Pertamina's finance director Alfred Rohimune said last week
that the company's cash-on-hand was now less than Rp 2 trillion,
but it must pay Rp 5.6 trillion a month to import crude and fuel
products.

The company imports some 300,000 barrels of crude and fuel
products a day.

"The company is bleeding. The government has to urgently help
Pertamina," Alfred said at a meeting with lawmakers.

The government has decided not to raise fuel prices (by
reducing the subsidy) for the public during the current general
election year to prevent social and political unrest.

But energy expert Kurtubi said that if the public was not yet
ready to pay for gasoline at the market price, Pertamina should
not be turned into a limited liability company and some of its
monopoly privileges should be given back to allow the company to
obtain a higher income.

He explained that since Pertamina lost its monopoly over the
country's upstream oil and gas sector, the company lost several
sources of income.

For instance, the company lost its retention fee or the fee
paid by the government to supervise oil and gas production-
sharing contractors (PSCs). The fee was a significant source of
revenue.

In addition, Pertamina could not buy crude oil directly from
the PSCs but from traders and it has to pay in cash. Pertamina
did not have to pay cash when buying crude oil from PSCs under
its supervision.

"The process is complicated. Eventually, Pertamina is forced
to dig deep into its own pocket to import crude oil," Kurtubi
said.

Pertamina turned into a limited-liability company last year
following the introduction of Law No. 22/2001 on oil and gas. The
law scrapped Pertamina's monopoly over the oil and gas sector to
lure new oil and gas investors into the country.

While ceasing to supervise PSCs in the upstream business, the
company still retains a monopoly in processing and distributing
fuel until 2005.

Both Sadli and Kurtubi argued that if Pertamina's financial
problems linger, an energy crisis would be inevitable.

"We have to face it that at some time we will face gasoline
shortages," Sadli said.

They urged the government to adjust the gasoline pricing
policy to market forces as part of the liberalization drive in
the sector.