INTERVIEW: Free market is not a doomsday for Pertamina, says Baihaki Hakim

Under the ASEAN (Association of South East Asian Countries) Free Trade Area agreement, Indonesia as well as other members of ASEAN is set to liberalize its downstream oil sector in 2003.

Petromindo.Com interviewed state oil and gas company Pertamina's president Baihaki Hakim on the state company's preparations for the free market era.

Following are the excerpts of the interview:

Question: The Indonesian government is set to liberalize the downstream sector of the country's oil market in several years. How does Pertamina prepare itself for the free market era?

Answer: We are now preparing three steps. First, we are going to protect our turf on Java Island. In the second place, we have to consider strategic alliances to expand to other areas. In the third place, we still have to shoulder the task entrusted by the government to care for remote, frontier and backward areas. But, for sure, we have to first control Java. (Pertamina) director of domestic marketing has already formulated good strategies.

Q: Could you specify the strategies that have been formulated?

A: Well, Pertamina has thus far been facing difficulties in terms of financing. Because of this, we shall not rule out the possibility of creating alliances with other companies. We are negotiating with some foreign companies on lube business. We have even received offers, including one from Korea. Regarding service, we shall probably tie up with RBP (British Petroleum London) as we are going to make lube business one of our business units. We are now mulling merger option, following the trend among the world's oil companies.

Q: What's the mechanism of the merger? Will Pertamina as a holding company merge with other companies?

A: No. I think all Indonesians still want Pertamina wholly owned by Indonesia. As such, we shall implement the merger process at the strategic business units that we shall create during the corporate restructuring in January 2001. For instance, we want to sell fuel at the Changi airport in Singapore or at the Heathrow in London. We don't rule out possible mergers with foreign companies.

Q: What is Pertamina's strategy in heading to that direction?

A: We are still in negotiations. For sure, there must be a win-win solution. But, thus far we have yet to decide who will be our partner. What is clear is that there are many interested parties, including Shell, Mobil, RBP and others. But, we have made intensive talks with RBP.

Q: Is Pertamina going to be a market leader on the domestic market?

A: Well, being a market leader on the domestic market is one of our goals. That is why are talking about merger, alliance and other form of partnership to be implemented in Pertamina's subsidiaries. That's why don't be surprised to find in five or six years we have formed partnership with BP or others in liquefied petroleum gas or other products.

Q: How's about the marketing? Will Pertamina be capable to lead the domestic market?

A: Prior to the arrival of foreign companies, we shall push Pertamina's subsidiaries, including El Nusa, to boost the number of gas stations. Because, aside from the fact that gas stations are our marketing front liners, the number of gas stations owned by Pertamina was too small, only 40. All are located on the green areas. In view of the fact that we have seven refineries, we have to have at least 2,500 gas stations.

Q: Do you think the plan of 14 investors to develop refineries in Indonesia will pose a threat to Pertamina?

A: I don't think so. Honestly speaking, I doubt their ability. I think what they have thus far done is keeping their licenses. It is proved by the fact even in five years prior to the economic crisis, when financial situation was stable, they even failed to realize their projects. Now, after the country is hit by the economic crisis, they apparently have a good excuse (for their inaction). Thus, our words to them are "Go ahead, if you still want to continue with the projects". We shall not interfere. We don't want to get involved in their businesses... because they only have papers.

Q: Will the fact that Pertamina does not have gas stations impede Pertamina's efforts to lead the market in the future free market?

A: I am personally not worried very much, because after all we shall control at least the remote areas, where foreign companies are reluctant to enter. Foreign companies will certainly prefer high-volume markets, which are situated in few areas in Indonesia, including Jakarta and Surabaya. After all, they don't have unlimited financial resources. They shall certainly not make wasteful investment. Thus, I don't see the opening of the regional market will become a doomsday for Pertamina. However, over two years, before they come, we have to make a good preparation.

Q: We've got information that they are lobbying the Indonesian government to allow them to use Pertamina's facilities when they start business in Indonesia.

A: Well, we can sense the move after reading the recommendations of the World Bank and the International Monetary Fund (IMF) and the Letter of Intent report. Because, after all, they (IMF, World Bank) are actually the mouthpieces of the foreign companies. But, our government is not stupid. How lucky they are if they can use the facilities built by the Indonesian people for free? This is not fair. If they want use (the facilities), they have to first invest. Don't use facilities, which have been built on the government's investment.

Q: Is Pertamina strong enough to face the strong pressure?

A: If they put pressure on us, we have put backpressure on them. Don't care about the allegations that the big countries threaten us. They have huge investments here. If they realize their threats, the first resistance will come from the big companies operating here. So, don't bow to their pressure. I already know the content of their stomach.

Q: What is the conclusion?

A: As I have told you, don't be afraid of the free market era. It will not become a doomsday for Pertamina. Furthermore, we still have time to prepare ourselves. (Lia KS)