Pertamina "victimized" in Tuban petrochemical project

State oil and gas company Pertamina will be victimized if it goes ahead to participate in the restructuring of the stalled petrochemical project in Tuban, East Java, belonging to Trans Pacific Petrochemical Indotama (TPPI), Koran Tempo reported on Tuesday.

Quoting a government source, the daily reported that Pertamina would be the loser if it accepted the deal, that requires Pertamina to supply propylene as the feedstock to TPPI for a four-year period worth US$400 million that would be converted into Pertamina's ownership of 10 at TPPI.

Rather than following the deal, the source said, Pertamina better sold the propylene in the market and get US$400 up front, and it could use the money to buy up to 50 percent of TPPI stake. If necessary, Pertamina could buy the whole project that is estimated to worth around 1.2 billion.

The source suspected that the current restructuring plan for TPPI aimed to protect the previous owners of TPPI, Hashim Djojohadikusumo, through his Tirtamas group of companies. Other shareholders are Siam Cement of Thailand (20 percent), Itochu, and Nissho Iwai, each with 5 percent ownership.

"I suspected that this arrangement tries to save the old shareholders so that they would not lose ownership in TPPI, and therefore, Pertamina is made a victim to support this interest group," he said.

Based on the restructuring proposal from Tirtamas, approved by IBRA that has taken over all TPPI domestic debts, IBRA and PT Silakencara Tirtalestari would form the so-called newco. The newco would control 70 percent stake at TPPI, while the remaining 30 percent would be owned by foreign shareholders and creditors.

But then to resume operation, TPPI needs fresh funds to finance its operating capital and supplies of feedstocks. The total funds needed would be US$475 million. TPPI would then issue product-backed bonds to raise the needed funds.

There are two scenarios to raise the needed funds.

First scenario would involve the government and Pertamina. Pertamina would supply the feedstocks to TPPI worth US$300 million that would be converted into Pertamina's ownership of 10 percent at TPPI. Domestic banks then provide the remaining US$175 funds, of which $75 million would be used for TPPI's capital.

In the second scenario, a new company, called special purpose vehicle would be established, to facilitate swap agreement between Pertamina and TPPI. Pertamina supplies feedstock to TPPI, and in return, TPPI supplies its refined products to Pertamina. (*)