New energy minister promise faster scrapping of Pertamina's monopoly

New Minister of Energy and Mineral Natural Resources Purnomo Yusgiantoro said his immediate target after becoming the minister was to scrap the monopoly of sate oil and gas firm Pertamina in the downstream oil and gas industry, including in the distribution of fuels.

"I definitely support the end to Pertamina's monopoly in the downstream oil industry. The government will keep its rights in the upstream industry," he said. "I will meet Pertamina officials to talk about the future of the firm."

But he noted that he would study the new draft oil and gas law before it was submitted to parliament.

Officials said earlier that the government would submit the new draft oil and gas law to parliament in July, but that was delayed because of a full schedule at the House.

Purnomo said Indonesia oil and mining faced a major challenge in supporting the nation's economy.

"I think there are big challenges for me to find ways to increase production in oil and to attract investors not only in oil, but also in mining," Purnomo said.

Purnomo promised to offer incentives to encourage investment in the oil industry, saying the country was having trouble even meeting its production quota given by the Organization of Petroleum Exporting Countries (OPEC).

"We have to offer new incentives to attract oil investors, in the form of fiscal or non-fiscal incentives," Purnomo. .

The incentives would include tax break and providing higher shares to investors in the split of oil and gas revenues from marginal oil fields.

Purnomo added that the government also could scrap the requirement obliging companies to use some locally made products in their oil and gas projects to encourage investment.

He, however, said he will carefully study oil companies' request that the government lift the ring-fencing regulation.

Lifting the regulation will allow oil companies to use revenues from producing fields to finance new oil exploration in other fields.

The government has turned down the request in the past on worries that it will jeopardize the government's oil revenues.

"We will study the request carefully to see how much it will affect the state budget," Purnomo said.

Purnomo, civilian deputy head of the military think-tank Lemhanas, was named to the post on Wednesday. He has previously worked in the oil industry as an adviser to the energy minister.

He said Indonesia was barely able to meet its OPEC output quota, currently 1.317 million barrels of crude oil per day.

He put current production at 1.45 million bpd, including 150,000 bpd of condensate.

"Indonesia has the potential to increase oil production. But we have to invite investors to search for oil. I think investors really need incentives," he said.

Purnomo also said he supported the OPEC agreement to raise output if world prices continue above US$28 for 20 days.

They have been above that level for just over a week.

Oil industry sources said Indonesia's biggest oil contractor, PT Caltex Pacific Indonesia, currently faced problems with some of their oil reservoirs and production was declining to around 707,000 bpd from an average target of 740,000 bpd in 2000.

Meanwhile, legislators Irwan Prayitno and Pramono Anung Wibowo said that the main challenge for the new minister was to deal with the graft-infected contracts and expedite the restructuring of Pertamina and state electricity company PT PLN.

They also put the hopes on the new minister's shoulder to quickly resolve the rampant practices of fuel smuggling.

In addition, they also called on the new minister to quickly complete the drafting of the new oil and gas bill and then submit it to the House of Representatives for deliberation.

The next challenge would be to diversify energy uses in Indonesia, so that the country would not rely too much on oil as the main source of energy. (*)