FOCUS: Will Pertamina continue to be seller of Indonesian LNG?
Monday, October 14 2002 - 01:50 AM WIB
The signing last month of the Fujian LNG supply contract by Pertamina surprised many local energy watchers who had anticipated that the contract would be signed not by the Indonesian state company but London-based BP PLC, the leader of the British-Japanese consortium which owns the Tangguh LNG project.
In the past, Pertamina handled all sales aspects of Indonesian LNG: the marketing and the signing of the sales and purchase contracts with buyers. It happened when the state company still acted as the highest authority in the country?s oil and gas industry.
But, the Fujian LNG contract was signed when Pertamina had been stripped of its decades-long leadership in the sector. Under the new Oil and Gas Law signed last year, the highest authority in the upstream sector has been transferred to a new agency called BP-Migas, while Pertamina is in the process of being turned into a common company, equal to other oil and gas contractors.
As far as the Tangguh LNG is concerned, BP had taken over the marketing of the project from Pertamina on the government?s blessing even before the enactment of the new oil and gas law.
Pertamina?s people started handling the marketing of the Tangguh LNG again after the Chinese government announced the winner of the Guangdong LNG supply contract. The contract was awarded to an Australian consortium, while Indonesia was given the smaller contract to supply China?s province of Fujian. Some legislators, voicing disappointment over the loss, criticized the BP-led marketing team for their failure to win the much-coveted Guangdong supply contract. In an apparent response to the criticism, the government changed the lineup of the marketing team for the Fujian LNG contract with a Pertamina official as the leader of the team.
The signing of the Fujian supply contract by Pertamina has thus brought a question into surface: Will Pertamina continue to be the seller of Indonesian LNG in the future? Has the government regained its trust in Pertamina as an LNG seller? Honestly speaking, Pertamina?s reputation in the LNG business is undisputable. It is the pioneer in the business and has made Indonesia the world?s largest LNG exporter over several decades.
Under the new oil and gas law, BP-Migas, as the highest authority in the upstream sector is not allowed to make business deals, including selling the government?s oil and gas shares. Instead, it should appoint a company, either Pertamina or others, to sell the oil and gas shares. The law also allows contractors to sell their own gas share.
BP-Migas has officially appointed Pertamina as the seller of the government?s oil share, but is apparently still reluctant to also name the state company as the seller of the government?s gas share despite repeated requests from Pertamina?s management.
?Don?t just make requests. It?s better for Pertamina to make a subsidiary for the marketing of LNG. If we think it is capable, we?ll ask it to sell (the LNG),? BP-Migas?s chairman Rachmat Sudibyo said on the day to sign the Fujian LNG supply contract, when asked for comments on Pertamina?s request.
What was then the reason that BP-Migas finally appointed Pertamina to sign the Fujian supply contract?
Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the appointment of Pertamina was to meet the request of the buyer, CNOOC.
?There are some buyers who still want Pertamina as the seller representative. One of the concrete examples is that in the Fujian supply contract. CNOOC and the Chinese government asked that Pertamina be involved,? Purnomo told Petromindo.Com last week.
Pertamina said that today the regional LNG market has been dictated by buyers that all producers, including Indonesia, had to do its best to meet the wishes of buyers. The appointment of Pertamina as the seller representative is meant to meet the request of the Chinese buyer.
Sources said BP initially expected to sign the contract with CNOOC. However, it together with its consortium partners, had no choice but agreeing to name Pertamina as the seller representative because the government, as the majority shareholder of the gas supplies for the Tangguh LNG plant, appointed Pertamina as the seller of its gas share and CNOOC wanted to sign the contract with only one company.
Legislators are apparently pleased with the government?s decision.
?It is us who asked the government to name Pertamina as the seller of the gas,? legislator Yosef Umarhadi said.
As a matter of fact, the government?s decision last year to entrust BP to handle the marketing of the Tangguh LNG to China drew criticisms from many parties, including legislators and industry players, who said the policy would only benefit certain companies and could hurt the interest of the nation. They argued that a private company will only care about its own interest. They feared that other companies would demand a similar right, which in the end could lead to the competition between producers in Indonesia.
Aside from the Tangguh LNG plant, located in the Bird?s Head area of Papua, which will become the country?s LNG plant, Indonesia has two other LNG plants, located in Lhokseumawe, Aceh and Bontang, East Kalimantan. The Arun LNG plant, whose production has been on the decline over the past several years, is owned by a consortium led by American energy giant ExxonMobil Corp., while the Bontang LNG plant is owned by a consortium comprising French firm TotalFinaElf, American independent firm Unocal Corp. and American energy firm Vico, which is 50-percent controlled by BP.
In the past, none of the contractors objected to Pertamina?s leading role in the marketing of the LNG. It was not only because Pertamina then held the highest authority in the country?s oil and gas industry, but also because the state company did not have any LNG plant, which could create a conflict of interest.
However, today, despite its undisputable reputation and experience, the country?s LNG industry players apparently no longer feel comfortable with the idea of Pertamina still leading the marketing efforts for all Indonesian LNG because the state company had found a huge gas reserve in Donggi, South Sulawesi and has announced plans to develop its own LNG plant there.
?How can Pertamina guarantee that there won?t be any conflict of interest?? an executive of a foreign contractor said.
Realizing the worries of the LNG players over the potential conflict of interest and the potential damage on the national interest if the marketing efforts were entrusted to contractors, the government has decided to oversee the marketing efforts.
?The marketing (of Indonesian LNG) will be handled by the government and it will be carried out using the Indonesian Inc. principle to generate the maximum benefits for Indonesia,? Purnomo told reporters during a press conference after the signing of the Fujian supply contract.
He noted that the fact that Indonesia would have three LNG plants in the near future would strengthen the country?s position in the increasingly competitive regional LNG market, as it will assure buyers about the security of supplies from Indonesia. This advantage will certainly become useless unless there is a good coordination among local LNG suppliers in the marketing efforts.
As such, Purnomo said, the government, BP-Migas, Pertamina and contractors should coordinate the marketing.
?But, that does not mean that Pertamina will always become the marketing leader,? Purnomo said. (*)