Interview: Shell Indonesia retail ops await subsidy move

An Indonesian unit of Royal Dutch Shell PLC has delayed the launch of a long-planned line of Shell-branded retail gasoline stations until the government clarifies its fuel price subsidy policy, a company executive said recently.

Shell wants details on how the government will regulate subsidized gasoline sales before the company starts retail operations, Shell Indonesia's external and corporate affairs head, Wally Saleh, told Dow Jones Newswires.

"We can start doing the business (now) if we want to...but we don't know how the subsidized fuel will be managed," Saleh said.

"It's subject to further government rules and their guidance, (so) at the moment we're still waiting for that."

Saleh spoke on the sidelines of the Asian Forum on Corporate Social Responsibility conference in Jakarta.

Shell's retail gasoline operations' delay reflects the revenue and investment losses caused by the Indonesian government's dithering over a firm timetable on the eventual phasing out of fuel price subsidies.

President Susilo Bambang Yudhoyono said last month that the budget-crippling subsidies could cost the government Rp 138.6 trillion in 2005 and vowed to slash them "after October" without providing any additional details.

Fuel price subsidies bled government coffers of $7.4 billion, or 3% of gross domestic product, in 2004.

Indonesian ministers will likely submit to Yudhoyono later this month a proposal to slash fuel price subsidies by an average of 40% by end-2005 and phase in additional fuel subsidy cuts throughout 2006 to bring prices at the pump on par with those on the international market, a government official told Dow Jones Newswires Monday.

The first round of subsidy cuts will occur in early October, Minister/State Secretary Yusril Ihza Mahendra told reporters Monday, quoting President Yudhoyono's comments during a cabinet meeting he led via teleconference from the U.S. earlier Monday.

Indonesia's government granted licenses in February 2004 to Shell and five other foreign firms to import and sell oil products in the country, ending the decades-long monopoly of state-owned oil and gas company Pertamina.

A senior executive of Jakarta-based AKR Corporindo told Dow Jones Newswires in April that the firm had signed a contract with Shell Indonesia to transport fuel to up to a dozen Shell-branded gasoline stations that the petroleum giant plans to open in Indonesia.

Saleh declined to confirm the number of Shell-branded gas stations the company plans to eventually launch, but said Shell would like to begin retail operations "as soon as possible", without elaborating.

"It's not just a matter of ending the subsidies...(we) want to know what the rules are," he said.

"To construct stations...we have plans, but the plans will be subject to further study." .(*)