RI needs to open oil market by 2000

RI needs to open oil market by 2000

SINGAPORE (Reuter): Indonesia must start to open its domestic oil product market by 2000, ahead of eventual market liberalization under the ASEAN Free Trade Area (AFTA) in 2003, former OPEC secretary general Subroto said yesterday.

Indonesia has already carried out the first step by announcing incentives for the private sector to build refineries, he told reporters on the sidelines of the Asia Pacific Petroleum Conference (APPEC) in Singapore.

President Soeharto, in a decree dated July 31, issued new and clearer guidelines to woo the private sector to build refineries and sell their products to the domestic market, but only through state-oil company Pertamina.

But the incentives fell short of ending Pertamina's monopoly in the domestic market so as to allow the private sector to sell directly to the retail market.

Indonesian Mines and Energy Minister Ida Bagus Sudjana also told reporters that despite the new regulations, "the retail marketing continues to be done by Pertamina."

Subroto said private sector refineries were the first step. The next step should be to allow the private sector refineries direct access to the retail market.

"Ultimately the refineries are to be allowed into market," he said.

Subroto, who heads a private think tank, The Foundation of Indonesian Institute for Energy Economics, said by 2003 when AFTA is in full swing, there should not be any barriers of products from Malaysia, Thailand and other regional countries.

So it was necessary for Indonesia to start competing with imports by building more refineries to meet its growing needs, which are growing at an estimated six percent a year.

Indonesia, which now has a refining capacity of 989,500 barrels per day (bpd), needs another one million bpd of oil products by 2003 to meet demand, he said.

"If you think about 2003 when AFTA is in application, my own feeling is that by 2000 or thereabout, some kind of deregulation of the domestic market should be in place. We should look at this as a kind of process," Subroto said.

Indonesian and foreign private sector investors have long asked the government to allow them to retail their products directly before committing themselves to build refineries.

Sudjana, in a speech to APPEC said that liberalization of global trade will force governments to create a conducive environment to attract investors.

"Approaching the globalization era, Indonesia is ready to face the challenges by joining AFTA in 2003, APEC (Asia Pacific Economic Cooperation) in 2010 and APEC-2 in 2020," he said.

A source close to Pertamina said in reforming the market, the government would also have to consider its subsidy scheme it and whether consumers were ready to pay higher prices if subsidies were lowered or removed.

The government also needs to ensure that the private sector performs the social role of supplying to the more remote areas, rather than focus on the more lucrative urban markets, the source said.

Sudjana said on Monday the government might raise domestic fuel prices, especially diesel, to reduce the subsidy, which has been climbing due to the rise in the U.S. dollar.