Local suppliers for oil and gas companies urged to compete

Local suppliers for oil and gas companies will eventually be edged out of the industry if they do not improve their financial and human resources capabilities to compete with their foreign competitors.

The danger is already looming, with the implementation of outsourcing system by a number of foreign oil and gas contractors in purchasing goods and services for their operational needs.

The outsourcing system -- basically delegating the supplies of goods and services to a single company -- has effectively sided away local small and medium suppliers.

In the outsourcing system, an oil and company would choose the most performing supplier, with strong capital and banking support, to supplies most of its goods and services.

Foreign production sharing contractors (PSC), in its outsourcing tender, require tender participants to have capital of at least US$40 million -- an amount almost impossible to be met by most local suppliers.

In addition, the PSC company also required tender participants to have strong banking supports -- also something difficult for most local suppliers to meet.

The secretary general of the Communication Forum of Goods and Services Suppliers (FKPPBJ) for oil and gas company Pertamina and its PSC contractors, Heroe Wiedjatmiko, demanded that the outsourcing system be reviewed because of the heavy requirements.

"These requirements will surely not be able to be met by local small and medium companies, and it will net only foreign suppliers," he said.

The chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie came out of the defense of local small and medium suppliers, arguing that it is not yet the time for PSC companies to force such a heavy requirement to local firms.

"If this system is implemented, national and provincial companies will gradually be sidelined," he said.

He noted that most of local suppliers for oil and gas companies are small and medium enterprises. Currently, there are around 3,000 local suppliers, 80 percent of them are categorized as small and medium suppliers.

With the implementation of outsourcing, foreign companies and foreign workers would eventually dominate the country's oil and gas industry. Already, about 55 percent of all income in the oil and gas companies go to foreign entities. In addition, foreign workers also control about 20 percent of employment in the oil and gas industry.

Nevertheless, Aburizal said that any policy adopted for the oil and gas industry, including policies to support local suppliers, if there is any, must be pursued transparently.

"The mechanism that will be applied must still be in accordance with the principles of professionalism, transparency and healthy competition," he said.

In anticipation of open market for oil and gas supplying industry, the best advise for local suppliers, but difficult to materialize, would be: strengthen their capital and seek stronger support from the banking industry, and thus they would be able to compete head-to-head with foreign suppliers. If they could not do it, it may be advisable for some of them to merge. (*)