Pertamina warns of hastily planned downstream market liberalization
Saturday, July 6 2002 - 10:54 AM WIB
?To liberalize and to establish a competitive market in Indonesia is a huge task and can be a very complicated one. It will need time and must be done carefully to avoid supply disruption and price instability,? said Muchsin Bahar, Pertamina?s downstream director in his written speech in IIOGE conference held in Bali Saturday.
?The formation of a fair, healthy and transparent domestic downstream market which can guarantee the supply of fuel and provide competitive price for consumers will need time considering currently the market is monopolized by Pertamina and application of subsidy and the unitary price everywhere in the country,? he added.
According to the new oil and gas law passed last year, Pertamina must end its monopoly in liquid fuel production, supply and distribution. However, Pertamina is given maximum 4 years transitional period until 2005, during which it would still maintain its monopoly and be responsible for Indonesia?s fuel supply. Foreign downstream players had been known to be keen set feet to tap lucrative Indonesian market
Muchsin said Indonesia?s population distribution and economic activities, which concentrated heavily in Java and Bali, would make it attractive for market players to invest there, but the contrary would happen to the less developed regions. Thus it had created an issue of who will be responsible to maintain supply to those remote areas when market is liberalized, he said.
Presently, he said, fuel distribution infrastructure in general will not be sufficient to support an efficient open market with multiple suppliers. The storage as well as port or terminal facilities will have to be enhanced first to support a reliable and sustainable supply of fuel.
Other issue, he said, certain pricing formula is needed in the early phases of liberalization as Indonesian consumers are used to unitary pricing formula.
?Experiences of market liberalization and deregulation of other countries showed that it was never been a straightforward nor an easy process. In some countries it has taken very long time, it even becomes, on some instance, a never-ending process. There are examples if liberalization is done hastily and in short period would resulted in the loss of significant downstream assets of the country,? he said.
?We think the most appropriate approach in making the downstream oil sector an open market is by executing gradual and stepwise changes through phased and carefully programmed transitional periods, which need to be managed carefully.? (alex)