Riau Islands, haven for fuel smuggling

Riau Islands, haven for fuel smuggling

Fadli, The Jakarta Post, Batam

Out-Port-Limit (OPL), or the sea area on the border between
Indonesia and international waters, has for years been the site
for illicit fuel transactions between Indonesian companies and
their foreign counterparts. Indonesian companies smuggle out the
fuel on the back of fuel price disparities between Indonesian and
neighboring countries, notably Singapore.

The latest transaction happened last month when the Jaya
Success tanker transferred some 120 tons of diesel fuel into the
Aiwa Maru tanker flying a Honduran flag in an OPL on the west
side of Batam.

The operation began with two companies hiring the tanker
ships. An Indonesian company and a Singaporean company negotiate
the price for a quantity of diesel fuel. After both companies
strike the deal, the Indonesian company, a business partner of
state oil and gas company PT Pertamina, hires a tanker to
undertake the transaction, as does the Singaporean company.

Both tanker ships arrive at a predetermine location, and pull
up alongside each other. Using a long pipe, the Indonesian tanker
ship pumps diesel fuel into the Singaporean vessel.

However, before the Jaya Success could finish filling the Aiwa
Maru tanker with diesel fuel, an Indonesian Navy vessel appears
and seizes the two vessels.

This modus operandi has been common in recent years especially
as the price disparity of fuel between Indonesia and its
neighbors, notably Singapore, has become wider.

The high cost of unsubsidized fuel in neighboring countries
has attracted many Indonesian companies to smuggle fuel out of
the country. Heavily subsidized diesel fuel retails in Indonesia
for Rp 2,200 (21 U.S. cents) per liter, while in Singapore it
costs the equivalent of Rp 6,000 .

The smuggling was able to occur because the Indonesian
companies, partners of Pertamina, did not sell to the public all
the fuel they had bought from Pertamina through a quota system.
Instead of selling all the fuel to the public, as it is obliged
to do through a legal agreement with Pertamina, the companies
only sell a portion of the fuel to public, while the remainder is
sold to foreign companies for a much higher price.

Most fuel smuggling occurs in the waters of Riau Islands
province, located near busy international shipping routes and
bordering a developed and energy-hungry nation, Singapore.

The chief of Pertamina's Batam branch, Nono Asmanu, denied on
Friday that Pertamina officials were in cahoots with Pertamina
partner companies in smuggling the fuel. Nono said that there was
little possibility that fuel from Batam, especially diesel fuel,
could be smuggled out to Singapore.

"The fuel quota set for Batam is 800,000 kiloliters for diesel
and 200,000 kiloliters for Premium. The quota is too small
compared to the quota given by central Pertamina to Pertamina
branches on the island of Java," said Nono.

Nono also asserted that his office had taken stern measures
against Pertamina partners smuggling fuel to other countries.

Nono is currently being questioned by Batam Police over
rampant fuel smuggling that has occurred in Batam in the past few
years.

The questioning is being carried out in the wake of large
scale operations against fuel smugglers. President Susilo Bambang
Yudhoyono announced on Thursday that the authorities have so far
seized 17 ships and arrested 58 people, 18 of them Pertamina
officials, in recent antifuel smuggling operations.