S'pore guarantee vital for Pertamina

S'pore guarantee vital for Pertamina

KUALA LUMPUR (Reuters): A US$5 billion Singapore government trade financing guarantee could be used to underwrite the maiden direct oil imports of Indonesia's energy monopoly Pertamina, industry sources said on Tuesday.

Oil officials said they hoped the trade finance could provide a bridge between July, when Pertamina plans to trade directly with the international market, until the time that the company has set up all the commercial links it needs to become a fully fledged trading entity.

Pertamina had given close to exclusive marketing rights to two President Soeharto-linked companies -- Perta and Permindo -- until the Soeharto's resignation earlier this month and so had little, if any, trading experience.

Pertamina is to review its contracts with the two companies to see if they are still needed.

Delegates at an oil conference in Kuala Lumpur said that they were worried trading with Pertamina might represent a risk because of its lack of commercial ties, particularly with international banks to raise letters of credit (LCs).

"In the past, the affiliates handled this. Now Pertamina has to use scarce hard currency to pay for the oil imports," a senior official of a Singapore-based refinery said.

The source said oil companies have made representations to the Singapore government about using the trade guarantees to supply Indonesia with oil.

Singapore has pledged to guarantee imports from and through Singapore up to a value of US$5 billion as part of international help to support the Indonesian economy.

A spokeswoman for Singapore's Trade Development Board could not immediately respond to a Reuter query on the issue.

Sources estimate that about 10 percent of Singapore oil exports, which amounted to Singapore $1.3 billion (US$770 million) in April, are destined for Indonesia.

But they were not sure how the plan, first mooted early this year, would be implemented, especially with the change in the Indonesian leadership.

"I'm not sure how it would be implemented. It's very complicated," the senior refinery official said.

Singapore Deputy Prime Minister Lee Hsien Loong said on Monday the government would go ahead with the trade financing despite recent upheaval in Indonesia.

The oil sources said it was vital for Pertamina to move quickly to set up a sound financial base for trading, because most potential oil trading partners were wary of the financial risks involved.

"We would not sell to them unless there is an LC issued by an international bank. The risk is just too great," one supplier said.

Pertamina's crude and oil product import bill on average costs about $5 million a day, sources estimated.

"Initially there will be a lot of hand holding. I think now is a good time for oil companies to set up in Indonesia and take advantage of the opening," one trader said.

Traders said despite Pertamina's woes, the oil company was under pressure to secure its first cargo for delivery in July directly, in order to be seen implementing reform of past practices.

"Politically, I think Pertamina has no choice but to import the cargoes directly in July. It would probably be done through an oil major," one regular supplier said.