Suppliers upset over Pertamina rejection of surety bonds

Suppliers of oil-related industries in East Kalimantan have expressed concerns over Pertamina's decision to reject surety bonds as a guarantee of their business contracts. They said that the state oil and gas company's move to replace the surety bonds with bank guarantees could kill their businesses because most of them could not afford to follow the new requirement.

Bustami Achmad, the chairman of the local chapter of the Indonesian Chamber of Commerce and Industry (Kadin), told Media Indonesia on Monday that most of the local companies could not afford to obtain bank guarantee because they did not have enough deposits to back up the debt facility.

"If we want to obtain a bank guarantee, we have to place a certain amount of cash in a bank. Unlike, the bank guarantee, obtaining surety bond is much easier, because we get the facility only with paying a premium to an insurance firm," he was quoted as saying.

A company, which joins a tender to carry out a project in oil and gas related industries should provide a guarantee to back up their contracts. Pertamina, which previously accepted the surety bonds as the guarantee, has changed the system to ensure more business certainty. (*)