Banks refuses to issue L/Cs for Pertamina to purchase fuel

Pertamina may not be able to maintain the national gasoline stock for 22 days because of the rejection by banks to provide L/C (letter of credit) facilities for the state-owned company to purchase fuel, the Kompas newspaper reported in its Monday edition.

Pertamina?s government and society relations manager Abadi Poernomo confirmed the news, adding that the L/Cs that the firm had yet to pay had totalled more than Rp 9 trillion.

As a result of the banks' rejection, Pertamina is now facing difficulties to continue importing gasoline in order to maintain a safe level of national fuel stocks for at least 22 days. Foreign suppliers have began rejecting Pertamina?s orders, according to the paper.

Abadi said Pertamina expected the government to keep its promise to disburse the promised subsidy, warning that should the government withhold the subsidy funds, Pertamina would default on the payment of its L/Cs.

He noted that for instance Saudi Arabian company Aramco had refused to meet orders from Pertamina.

However, officials of several local banks interviewed by the paper denied that they had stopped providing L/C facilities for the state company. They admitted however the banks set limits for the amount of L/Cs issued for the state company.

Pertamina is also facing a similar problem in case of LNG. It recently said it would not sign any deal to buy liquefied natural gas (LNG) from overseas producers until the government agrees to finance the LNG purchase.

"We have sent a letter to State Minister of State Enterprises asking to finance the LNG purchase. But we have not yet received any reply," Pertamina's director of marketing and trade Ari Sumarno said last week, adding the government's commitment to finance the LNG purchase was needed because it was the government that should pay the LNG import.

Pertamina needs to import a cargo of LNG to meet its export commitment to its buyers. The shortage of the LNG supply occurs because PT ExxonMobil Oil Indonesia, the main supplier of the Arun LNG plant in Aceh, has been asked by the government to allocate part of its gas to fertilizer producers. As a result, the plant has suffered a shortage of gas supply to meet its export commitment. The plant needs at least a cargo of LNG to meet its export commitment for April.

The problem occurs because the fertilizer producers buy the gas at subsidized prices, far below the market price. The government has promised to cover the price difference but no formal commitment has been made.(*)