Results of the hearing between of House and Pertamina

Domestic fuel consumption to increase to 40.7 kiloliters this year

Indonesia's domestic fuel consumption is expected to increase to 40.7 million kiloliters this year and about 20 percent of the fuel demand will be imported, according the president of state-owned oil company Pertamina Baihaki Hakim.

Speaking at a hearing with the House of Representatives (DPR) on Monday, Baihaki said that Indonesia would only able to meet about 80 percent of the fuel need and import the rest due to inadequate refining capacity at home.

Baihaki, who was appointed as the president of the oil company last week, said that Pertamina, opened up the oil refinery industry to foreign investors four years ago to cope with the domestic fuel shortfall and for exports but the new policy did not really help.

At least 10 local and foreign companies have obtained licenses to invest in the domestic fuel production but none of them have realized their projects due to small margin expectation. Under the existing law, private refineries are allowed only to sell their fuel products in the domestic market through Pertamina and this makes investment is not feasible.

The government under the Soeharto administration submitted an oil bill two years ago to amend the law and allow private oil refinery operators to sell their duel in the domestic market directly but the bill was turned down.

Baihaki said that Pertamina had to continue to import part of the country's fuel need because it had no sufficient investment funds to build new refinery facilities. "Pertamina will only overhaul the existing ones in order to increase their production," he added.

Japan will not cut LNG

The new Pertamina boss also denied at the hearing media reports that Japan would reduce its liquefied natural gas (LNG) imports from Indonesia.

"Japan is not reducing its LNG import commitments. What is true is merely that there was one purchase contract which would expire in 2004, which will be extended with a reduced quantity and a shorter tenure," he said.

Reports said Tohoku Electric Power Co. and Tokyo Electric Power Co., both Japanese customers, would cut LNG imports from Indonesia by 2.5 million metric tons annually to a combined one million tons per year after the current contract expires in December 2004.

Under existing contracts, Indonesia exports 18.2 million tons of LNG annually to Japan. Baihaki acknowledged that in the long term there would be a small decrease in imports from one or two customers would not constitute reduced LNG commitments by Japan as a whole

Higher fuel prices for exporters

Also during the hearing, Baihaki unveiled Pertamina's plan to charge export-oriented companies for fuel in U.S. dollars and at international prices to reduce the government's subsidy in the domestic fuel sales and to curb fuel smuggling.

He also said that the same move would be also imposed on local companies using foreign-flagged ships.

According to him, the higher fuel prices would not hurt local exporters but would instead encourage them to boost their efficiency.

Baihaki, however, said that it is up to the government to decide whether or not the higher fuel prices would be imposed.

Caltex should have at least 51% in CPP

The former Caltex president said that Caltex Pacific Indonesia insisted to have at least 51 percent stake in a joint venture, which would take over the Coastal Plains Pekanbaru (CPP) oil block because having less than 51 percent, investment would not economically viable given the large amount of investment needed to maintain its production level.

But he said that it was now up to the government to decide the split of the shares. "The management of Pertamina is no longer involved. It is now the authority of the commissioners," he said, adding the management's role was reduced to giving recommendations.

The government has asked Caltex and Pertamina to set up a joint venture to take over and operate the oil block when the current contract ended in August next year. The oil block is currently operated by Caltex.

Parties interested in having a share in the CPP project after the contract expiration are Pertamina, Caltex and the Riau provincial government, Baihaki said.

Pertamina and Caltex have reached an initial agreement on the ownership of the planed joint venture, which would be established for the oil block.

"But now we have the Riau provincial government which is also interested in the project. It needs to be negotiated further," he said.

Some legislators said during the hearing that the Indonesian parties, consisting of Pertamina and the Riau government, should be granted at least a 70 percent share in the operation.

Foreign consultant to be replaced

Baihaki also said he would replace foreign consultants at the oil company with local ones order to reduce spending in the next fiscal year, which would begin in April.

"If it its possible we will use our experts either from inside (Pertamina) or from private firms, he said adding the foreign consultants ignored the local aspirations due to the lack of their understanding of the local culture.

Pertamina at present hires two foreign consultants, Boston Consultant Group (BCG), with a contract of US$30 million and a German information technology company with a contract of $100 million. (*)