RI open downstream oil sector to foreigners

RI open downstream oil sector to foreigners

SINGAPORE (Reuters): Indonesian Mines and Energy Minister
Kuntoro Mangkusubroto said on Saturday the country's downstream
oil sector could be opened to outside investors from next year.

"To liberalize the downstream sector, (we) can start the
program hopefully next year if the law, which I am in the process
of reviewing, can be approved by House of Representatives," he
said.

The comments were Kuntoro's latest on a series of reform
measures he has introduced since President Soeharto resigned in
May.

Much of Indonesia's oil industry is already open to foreign
investors. Foreign oil firms are active in the upstream sector,
covering oil and gas exploration and production.

Foreign investors can invest in some areas of the downstream
sector, such as refineries, but they have held back because
Indonesia's state oil firm Pertamina has a government-backed
monopoly on the key retail market -- for the world's fourth
biggest population of about 200 million people.

Liberalizing the downstream sector would open the last
remaining area to foreign investors, so long as it includes the
retail sector.

Last week, Kuntoro told a meeting of the Indonesia-Australia
Business Council that Indonesia was seeking private investment in
the upstream and downstream sectors.

The policy was tied to a review of a new oil and gas law, he
said.

He has not indicated when the House might approve the new law,
but he told reporters on Saturday: "I don't see any significant
problems."

Kuntoro was in Singapore to attend the 1998 annual energy
ministers' meeting of the Association of Southeast Asian Nations
(ASEAN).

Analysts said liberalization was needed, to give Indonesia
access to technology and cash, but initial interest might be
muted.

They said potential investors in the oil industry were seeing
their own profits squeezed by a sustained low oil prices, Asian
oil demand had slowed dramatically and Indonesia carried big
country risk.

Indonesia's oil products prices are subsidized so investors in
the retail market would need guarantees or compensation from the
government.

Kuntoro said Indonesia's oil consumption was bound to suffer
as a result of the economic crisis of the past year.

"Consumption surely is lower than normal because our economy
is contracting. It should go down by 5 to 10 percent lower," he
told reporters.

Analysts have forecast a 15 percent contraction in Indonesia's
oil consumption in 1998 from 1997.

Kuntoro has announced sweeping reforms of the oil sector since
Soeharto fell from power.

Pertamina is reviewing contracts with some 120 to 149
companies with Soeharto links, and prices and costs for
refineries and refinery units are under review.

Kuntoro said contracts with Pertamina affiliates Perta Oil
Marketing Ltd. and Permindo Trading Oil Co. had been terminated
after a review to see if they were still needed.

The affiliates, majority owned by consortium linked to
Soeharto friends and family interests, previously dealt with most
of the country's oil imports and exports.

Now Pertamina is dealing directly with the international
market in the US$200 million per month business dealings.

"The contracts have been terminated already," Kuntoro said.
Kuntoro told reporters he would also make changes at Pertamina to
make it more commercially viable.

He declined to talk about potential privatization because he
said it was too early in the process of change. But he said he
wanted to improve the company's profitability and
competitiveness.