Trustee bank set for fuel subsidy payments

Trustee bank set for fuel subsidy payments

Leony Aurora, The Jakarta Post, Jakarta

The following is the third of a series of articles to mark the
liberalization of the country's downstream oil and gas sector
later this year.

The government is considering applying a new system that utilizes
a trustee bank instead of the ministry of finance to handle all
subsidy payments to industry players after state oil and gas firm
PT Pertamina's monopoly ends in November.

The bank, which will receive funds from the ministry, will pay
fuel subsidies periodically -- possibly monthly -- after
receiving reports from the Downstream Oil and Gas Regulatory
Agency (BPH Migas) on the volume of fuel products distributed by
each company, the agency's director of fuel products, Adi Subagyo
Subono, said recently.

"The bank will cover the payment, even if it has not received
payments from the finance ministry," said Adi.

He added that such a system would ensure that companies that
distributed subsidized fuel products -- kerosene, diesel and
premium gasoline -- throughout the archipelago would do it in a
timely manner.

The trustee bank proposal, however, would still need approval
from the finance ministry, Adi said.

"The bank will, of course, receive a fee for its services,
which means there'll be additional costs," he added.

At present, after verifying the cost and fees involved in
distributing subsidized fuel products, the government, through
the finance ministry, disburses 90 percent of the funds to
Pertamina each month. The remaining 10 percent will be given at
the end of the year after an audit is completed.

The monthly fuel subsidy payment is often delayed and the
full-year audit to get the remaining 10 percent can take more
than a year to complete.

In May, amid rising global oil prices, Pertamina suffered a
cash-flow problem and cut back fuel imports as payment from the
government was stalled, resulting in long queues at gas stations
and fuel scarcity in many parts of the country.

After November, the government plans to apply a tender system
for the importation of subsidized fuel products, where companies
compete to supply fuel for the lowest price for a contract of up
to a year.

Pertamina will continue to distribute fuel products produced
by refineries in Indonesia, and at present provides some 70
percent of subsidized fuel consumed by the country.

The latest draft of a ministerial decree to regulate the
public service obligation (PSO) states that the government will
guarantee that business entities distributing subsidized fuel be
paid periodically and on time.

Adi said that an independent auditor, which would report to
BPH Migas, would conduct the verification on the amount of
subsidized fuel distributed by companies -- Pertamina and others
-- when the new PSO system started.

"BPH Migas would appoint the auditor through a tender," said
Adi.

The auditor's job would be less complicated than currently as
it would only need to verify sales volume, he added.

Energy observer Kurtubi said the planned payment mechanism
involving a trustee bank would indeed prevent cash flow problems
in subsidized fuel distributors.

He suggested, however, that the government provide Pertamina
with initial working capital sufficient to cover one month of
fuel imports. "The system of Pertamina paying for fuel imports
first and the government reimbursing it after should be
reversed," he said.

Kurtubi urged the government to reconsider opening the market
for players other than Pertamina, questioning whether fuel
subsidies could indeed be channeled through a private entity.

"The government should fix its pricing policy first. After
fuel prices follow market prices, then it can invite other
players to participate," he said.