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.