World Bank urges Gov?t to dismantle Pertamina?s downstream monopoly
Wednesday, August 14 2002 - 04:14 AM WIB
In his letter to the ministry of finance, Mark Baird, World Bank country director said that the government should create at least one-and preferably two-additional refiner-marketer companies aside from Pertamina and would transfer them key refineries including Cilacap and certain other assets directly owned by the state.
Currently the government of Indonesia is the owner of five refineries, and Pertamina had been asking the government to transfer those refineries to Pertamina and thereby controlling all refineries that are operating in Indonesia.
The World Bank also recommended establishing joint ventures or open access arrangement and pipelines so as to facilitate import competition.
?An industry structure along this lines would provide a sound basis for early competition and enhance prospects for quickly attracting private direct investment,? said World Bank.
The Law 22/2001 gives Pertamina privilege to retain its monopoly until 2005, before the market will be liberalized.
?The combination of Pertamina?s restructuring strategy and the licensing and regulatory regime envisaged by the draft of government regulation on downstream business would make it difficult for new players to enter Indonesian market in the short-to-medium-term.?
According to World Bank, Pertamina had been preparing for market liberalization with the aim to retain monopoly in the island of Java and engaging in ?cooperative competition elsewhere. The key elements to reach the goals include securing ownership of all key existing downstream assets including refineries, important terminals, storage facilities and pipelines. Pertamina is also in the process of taking an equity stake in the-part completed TPPI petrochemical plant in Tuban, East Java through a complex financing scheme that will give Pertamina an exclusive offtake agreement for TPPI refined products such as HOMC, kerosene and diesel. In addition Pertamina has also plan to develop, with foreign strategic partner, a new large refinery alongside TPPI in Tuban.
Other strategy Pertamina adopted is locking in retailers through long-term agreements under which it would assist with station upgrading. Pertamina is also proposing to the government for limiting inter-regional variation in retail fuel prices.
?While Pertamina?s roadmap shows downstream cometition commencing 2005, the prospect for effective competition in the foreseeable future now appear bleak as Pertamina?s internal rtestructuring strategy coupled with the currently proposed business licensing regime are likely o restrict the ability of new players to enter the sector. This applies particularly to Java market, where Pertamina envisages owning all existing refineries and related infrastructure, and having equity stakes in and exclusive fuel off take agreement with panned new refineries,? said World Bank.
World Bank strongly suggested that the government not to transfer the whole downstream assets to Pertamina.
?To enable competition on Java, Cilacap refinery should be given to a new state-owned refiner. It is also important to ensure that key pipelines, storage facilities and terminals are appropriately accessible to competitors, and the fees charged should not be discriminatory. Alternatively it may be appropriate to establish to own and operate such assets,? said World Bank.
?Assets for which open or joint venture will be important include the Balongan terminal, as without the terminal effective competition in Jakarta and parts of West Java will be very difficult in short term. Equally important is the need to set aside one or two import terminals with preferably one on Java for independent importers. This will expose domestic refineries to direct compettion from those in neighboring countries and hence help accelerate performance improvements.?
An industry source told Petromindo.Com that The World Bank?s recommendation was nothing but the effort to make way for the easy entrance of international downstream players to Indonesian downstream market.
?If the government buys the recommendation, it would mean international players could enter Indonesian market with minimum efforts, as they could share the facilities that should be given to Pertamina alone to enhance its competitiveness. They do not want to spend investment to build terminals, pipelines and storage facilities. So they are using World Bank to force Indonesian government to give them easy and cheap access to play in the huge Indonesian market,? said the source.
If they are serious, they should invest to build their own facilities, said the source.
The source argued that Pertamina?s control of market share would ensure Indonesian people to buy fuel products at ?fair price?, as, unlike international players, the company is controlled by the government. (alex)