Indonesia - Privatisation of Pertamina.

The restructuring process is done with the help of an Indonesian consulting firm in partnership with Hayes Management and Boston Consulting Group. Their main task is to propose the best options for Pertamina's upstream and downstream assets to become profitable. The next phase would be a privatisation of profitable downstream assets, including the refineries. Some of the refineries would have to be upgraded to become more efficient before being privatised. The products retail businesses and related facilities would be sold off at the beginning of the next phase. Caltex, the biggest oil producer in Indonesia, would be among the first foreign oil companies to join the downstream sector and buy into some of the refining capacity. This would be expected as soon as the lifting of subsidies and the deregulation process have become credible. The companies would include Mobil, Exxon, Arco and other Western majors active in Indonesia's upstream sector. These companies would be ready to build new refineries, as Pertamina still imports oil products which its plants cannot produce, with local demand expected to reach 1.35 million b/d or more by 2003. The country is already open to private investment in new refineries. In November 1998 the investment ministry offered a 12-year tax holiday for new refining projects, provided that they are not built within Pertamina's main oil market on Java island. The new incentive was given to revive investors' interest, with proposals for 16 refining projects worth over $23 bn having been stalled in recent years. In August 1998, Spitsbergen Oil of the UK and the local company Felima Pacific decided to go ahead with building their grassroots 125,000 b/d refinery project on the southern coast of Java. To cost over $1.5 bn, the plant will be near the 348,000 b/d Cilicap refining complex of Pertamina and should be ready by 2002. Kuwait's KPC and local interests are considering a new refinery in Sulawesi. The PSCs will be transferred from Pertamina to the energy ministry. Pertamina's upstream division will be split into oil and gas producing SBUs and will concentrate on onshore fields to be developed. Costly and technologically challenging offshore fields and prospects will be given to foreign companies on farm out basis, to generate capital for the SBUs. Some of the 1,000+ marginal fields will be offered for development as JVs. The state gas utility Perusahaan Gas Negara (PGN), to lose its monopoly on distribution and pipelines, would restructure its operations and allow private companies into the gas market. PGN would set up a new subsidiary, PT Co- Generation, to promote gas use in small-scale power plants, and would grant private gas utilities access to the pipelines. Gulf Indonesia, a local unit of Gulf Canada, is offering for sale its 70% equity in and operatorship of the new 540 km Corridor Gas Pipeline linking the Asamera gas production system in Central Sumatra to the Duri oilfield of Caltex in South Sumatra. The pipeline, with a capacity of 350 MCF/day which went on stream in early 1999, supplies gas to power systems needed for Duri's oil production. CGP is worth $600m. Another project open to private investors is a 140 km gasline to link Asamera to Jambi province, and from there an extension to Batam island (near Singapore) would involve a pipeline 80 km onshore and 200 km offshore. Its capacity will be over 350 MCF/day. The gas will be used in a combined cycle power plant. It will be part of a 1,040 km network from Sumatra to West Java. This will form part of an integrated gas grid to cover 2,195 km, from Sumatra to Porong in East Java. The national gas grid should be completed in 2006. The use of gas is set to expand. On Java island, where about 70% of the population is concentrated, and its offshore, there are a number of gas fields being developed for the local market. As the electricity sector is to be deregulated, there will be a number of new power ventures that buy gas from the nearest producers. Consumption of coal has risen from 300,000 toe in 1983 to 6.4m toe in 1997. In April 1993 the government launched a 10-year plan for power generation under which plants were to be coal-fired. The integration of coal into the energy mix over the past decade has been impressive. Indonesia has vast reserves of goodquality coal. After the liberalisation of licencing in the 1980s, several foreign companies have launched development projects - including British Petroleum, BHP of Australia and CRA which is part owned by RTZ of Australia. Indonesia has since become the world's fourth largest exporter of steam coal, rivalling the US, Australia and South Africa. Most mines are located in Kalimantan, where the coal has low sulphur, ash and moisture content. It is estimated that proven coal reserves, around 3,000m tons, would last another 30-40 years. Of these reserves, two-thirds are sub- bituminous and lignite and the rest are anthracite and bituminous. The government wants to widen the use of geothermal energy as a means to generate power. (Geothermal plants use hot water or steam beneath the earth's surface to generate electricity). As an archipelago with some 127 active volcanoes and hundreds which are extinct, Indonesia has the world's largest geothermal reserves. The government had set a goal to produce 1,000 MW of electricity from geothermal sources by 1999, with an ambitious target of 40,000 MW for 2020. A geothermal power plant at Kamojang in west Java generates 144 MW of electricity.