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.