INDONESIA - Pertamina - Company History.

Article 33 of the National Act of 1945 emphasises that "Land, water and their content of natural resources are possessed by the state and are used for the people's utmost wellbeing". Based on this Article, the privilege to manage the petroleum industry is in the government's hand.

In 1960, the Congress stated a policy that the mining of oil and ground gases is only permitted for the state, through a company owned and run by the state. Thus Pertamin was established.

The involvement of any foreign entity was to be governed by contract to be negotiated with Pertamin under a law setting the rules and regulations pertaining to the exploitation of the country's petroleum resources.

Apart from E&P contracts between Pertamin and foreign companies, there was to be a set of agreements on oil refining, production of petrochemicals, marketing and distribution, etc.

Another national company, Permina, was established. But Pertamin was responsible for the administration, management and control over petroleum exploration and production, midstream and downstream operations.

In addition, Pertamin conducted the oil distribution's process for the entire nation. Permina founded the Apprentice Technique School (Sekolah Kader Teknik) in Brandan to fulfill the needs of experts in the petroleum sector. Permina also established the Oil Academy in Bandung at 1962.

The Oil Academy's curriculum consists of several aspects of the oil industry, and the graduates turned into the main forces in Pertamin. In 1968, to consolidate oil and gas branches of the petroleum industry for a more efficient management, exploration, production, refining, marketing and distribution operations, Permina and Pertamin merged into one entity called PN Pertamina.

Pertamina was restructured on several occasions through the years and - in a process started in April 2003, on Sept. 17, 2003, the company was legally transformed to become PT Pertamina (PERSERO). That was by the enactment of Government Regulation No.31/2003.

Pertamina now is under the co-ordination of the State Minister for State-owned Enterprises. Like other contractors, as a commercial business company, Pertamina also holds a Co-operation Contract under which it assists the state E&P regulator, the Oil and Gas Implementing Body (BPMigas).

Due to its transformation into a limited liability company, Pertamina has thus become a purely commercial, profit-oriented enterprise competing with other companies (both local and foreign) in E&P operations, be that within Indonesia and abroad.

Under the oil and gas law of November 2001, Pertamina was set to be de-monopolised and privatised. Due to a variety of administrative problems and financial scandals, however, the targets of issuing bonds to finance its projects and of holding an initial public offering (IPO) were missed in 2004 and in early 2005.

Now the target for issuing an IPO has been tentatively set be finalised by end-2005. But it appears that the IPO is not likely to occur before the second quarter of 2006, in view of a number of problems relating to the company's profitability. The main reason Widya Purnama was appointed in August 2004 to head Pertamina was to improve the company's performance and speed up the process of privatising the company.

Before Widya and his predecessor Ariffi were at the helm, Pertamina had been suffering from a number of problems other than the corruption scandals. It had been struggling for lack of cash. Since April 2003, the company had to keep only about $200m of its annual profits, while its planned domestic operations and international developments through to fiscal 2007 were to cost some $4.5 bn.

Routine Pertamina spending on operations from early 2003 to 2007 were set to amount to about $400m per annum for each of the upstream and downstream sectors. Investments in oil refining, storage and distribution were gradually to decline to zero in five years.

Pertamina had targeted cross profit, before the government's take, to grow to 24 trillion rupiah ($2.66 bn) over a five-year period, from a projected net income of 11.9 trillion rupiah in 2003 (see background in Vol. 60 DT No. 12).

Once privatised, Pertamina will be free to pursue new projects and expand, with overseas operations to include both upstream and downstream interests. It will be able to issue bonds and borrow from local and international money markets.

Pertamina will lose many of its former responsibilities as it gears up for privatisation. But it will retain the role of lead marketer of Indonesia's LNG, although in this respect BPMigas is also playing a role and has set a precedent by allowing BP to market liquefied gas from its Tannguh integrated gas E&P/downstream venture.

Pertamina in partnership with Medco Energi, a rapidly growing local company, is promoting an integrated $1.7 bn LNG venture in Central Sulawesi. The two partners have been negotiating with Marathon of the US so that the latter take equity in the upstream part of the venture as well as buy the LNG on long-term basis.

Marathon will take the LNG to a terminal in Baja California in Mexico and the regasified gas will be marketed on the US West Coast. This is the second LNG venture geared for the US market.

Pertamina also has an integrated gas E&P/LNG project in East Kalimantan. Potential markets for the LNG, apart from the island of Java, include Latin America (see Gas Market Trends No. 11).

Pertamina will retain its oil refineries and oil products distribution business. Pertamina's downstream directorate expects fuel subsidies in Indonesia will be removed in 2006. By then Pertamina will have lost its monopoly over the local oil products market which will be opened up to private investors, both local and foreign.

The government in mid-2004 agreed to issue fuel retail licences to private companies, both local and foreign, on the understanding that fuel subsidies would be removed from early 2005. But the Dec. 26 earthquake and ensuing tsunami caused Jakarta to keep subsidies on basic fuels (see Downstream Trends No. 9).

ChevronTexaco, ExxonMobil, ConocoPhillips, BP, Shell, Total and Unocal are among major foreign operators in Indonesia said to be intending to establish local fuel retail businesses once all subsidies have been removed.

Eddie Widiono: The CEO f the state-owned electricity company, Perusahaan Listrik Negara (PLN), Eddie Widiono is working on expansion of his firm's power generating capacity by having gas-fired plants built in West Java. One of his main projects is a terminal to be built in Cilegon, in the West Java province of Banten, to receive and regasify LNG for supply to nearby power plants. The terminal would be on stream in 2007 with an initial capacity of 400 MCF/d which will later be expanded to 800 MCF/d and will eventually reach 1,000 MCF/d. Initially the LNG can be sourced from abroad and later on suppliers could be the new East Kalimantan LNG project of Pertamina and/or Tannguh. Widiono says PLN needs to have over 5,000 MW of new power generating capacity by 2010/12.