Pertamina may be forced to share downstream assets with multinational players

State oil and gas company Pertamina?s hope to keep its downstream assets to itself and create barriers to entry to potential competitors now appears dim as the government signals it will adopt a common user system, which it believed would boost industry?s efficiency.

?The first challenge to deregulate downstream oil industry is to ensure that competition is transparent and fair. We do not want Pertamina or any other company to be in a position that allows it to erect barriers to new entry in (fuel) distribution sector, as it would create monopoly and inhibit growth of the industry,? said Coordinating Minister for Ecomic Affairs Dorodjatun Kuntjoro-Jakti in his written speech when addressing a seminar on Monday.

He said it was unlikely for downstream investors to build new refineries, or terminals or pipelines in the short term given the huge investment; rather, they will want to import petroleum products for distribution in the domestic markets. However, he said, if new players do not have access to terminals and pipelines around the country, then they would not be able to import sufficient quantities of petroleum products to ensure a healthy level of competition.

?In this regard, the government will look at innovative ways to ensure fair and transparent competition prevails. This will require a restructuring of Pertamina and introduction of rules that allow new players open access to terminals and pipelines so that imports are possible,? said Dorodjatun.

Pertamina currently owns and monopolizes all the country?s petroleum pipelines, terminals and storages.

Pertamina had been fighting hard to keep its downstream assets to itself, arguing that the opposite move would only cripple Pertamina and put the company in head- to-head competition against big multinational players which has abundance of capital, technology and net work. More over, Pertamina also argued that serious investors must build their own infrastructures to show their commitment to stay in business here for long term.

Under the new oil and gas law, Pertamina will loose its monopoly in downstream sector. But the company is currently targeting to keep its downstream monopoly in fuel distribution in Java and Bali islands intact.

Foreign downstream investors had repeatedly expressed interest to invest in Indonesia?s downstream industry, but warned that they would wait until the government drafted clear and concise downstream regulations and that the role of` Pertamina is clearly defined.

Meanwhile, a noted consultant agreed that Pertamina must be forced to give up some of its infrastructures to be shared with potential investors, but the government must also allow Pertamina to accumulate earnings and its non-commercial commitment must also be alleviated.

?Is Pertamina competitive in downstream industry? If Pertamina had to go head-to-head with major multinationals, the answer is probably ?no?. Although Pertamina has a government safety net beneath it, it had no upside advantages-no retained earnings, no owned assets, no-joint venture partners,? said Fereidun Fesharaki, President of US-based consulting firm FACT Inc., who also addressed the seminar. (alex)