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Indonesia facing scarcity in oil fuel (BBM) supply.

It is an irony that Indonesia, an oil producer and member of the Organization of Petroleum Exporting Countries (OPEC) has to go through a period of scarcity of oil fuel (BBM) supply. In the past two months, many areas in at least 13 provinces in the country have suffered shortage of BBM supply.

Meanwhile, the country's consumption of BBM has continued to increase from year to year as economic growth is proportional with the growth of energy demand. The country's economy is now growing by 6% .a year, but energy demand far exceeds estimate of the government.

BBM production in he country is not entirely produced from domestic feedstock in crude oil. The country's oil and gas sector is now an anticlimax. The country's production of crude oil is declining by 16%. The decline is natural with most of the producing well having been too old and less explorations.

The country could no longer rely on oil sector for export earning. The oil boom from the 1970 to 1980s has been over. There was even a period in 2004 when the country became a net importer of oil. Production has been declining while consumption continues to increase.

Meanwhile, the country's dependence on oil fuel remain high or more than 60%. Pertamina, the state-owned oil company, therefore, has to import BBM to cope with shortage in domestic supply. Based on data at Pertamina, production of crude oil and condensate in 2004 totaled only 1.12 million barrels per day. Around 514,000 barrels of the production are to be exported on contract leaving only 486,000 barrels that could be used for domestic consumption as against requirement of 1.35 million barrels per day. BBM imports, therefore are needed every year in addition to Imports of around 400,000 barrels of crude oil per day to be processed into BBM by local refineries.

BBM imports are needed as the processing capacity of the refineries of Pertamina is only 1.05 million barrels per day. Imported BBM include kerosene, gasoline and gas oil. BBM imports average 350,000 barrels per day to guarantee domestic stocks. Pertamina spends around Rp 9 trillion a month for BBM at present when the oil prices soaring to US$ 40-US$ 50 per barrel.

Pertamina, which handles the distribution and sales of BBM in the country, is required to sell BBM on government set prices. In March, 2005, he government raised the prices of BBM by an average of 29%, but the price hike was not enough to meet the market price levels. Pertamina, therefore, remains suffers a deficit as production cost still exceeds income from BBM sales.

Pertamina guarantees sufficient stocks of BBM but long queues of cars and motorcycles have been seen in many gas stations and kerosene distribution centers. Shortages have been reported in various areas including in large cities like Surabaya, Medan and Pekanbaru. A number of gas stations were closed pending BBM supply from Pertamina.

Pertamina only cut supply to filling stations by 5% to reduce consumption from 11,500 kiloliter per day to 10,500 kiloliters in line with the quota set in the state budget. If the supply cut could be raised to 10% per day, BBM consumption could be reduced to 400,000 kiloliters in 2005 and the amount of subsidy to be paid by the government will decline more significantly.

Pertamina sought to reduce consumption not only in the industrial sector but also consumption of the public in general. Consumption for industry beyond the quota has to be paid on market prices. The prices of BBM within the quota are Rp 2,400 for premium gasoline, Rp 2,200 for automotive diesel oil, Rp 2,200 for kerosene and Rp 2,300 for industrial diesel oil per liter.

Supply to be raised

The government has calculated the volume of BBM to be procured by Pertamina. The volume, approved by the House of Representatives in the 2005 state budget is 59.6 million kiloliters. The stock was calculated based on last year's requirement of 60 million kiloliters.

The stocks are divided into stocks per quarter every year. In the first quarter of 2005, BBM consumption already exceeded the stock set for that period by 10%, mainly because of a surge in the consumption of gasoline to follow the fast growing number of motor vehicles. Consumption of ADO also roe 4%.

BBM consumption in Jakarta rose and exceeded the quota set for July by 10.8%. Pertamina, therefore, had to make adjustment in its distribution and calculated the real requirement. Supply, therefore, became tighter.

Pertamina had to tighten supply because of he limited subsidy triggering the fuel supply crisis in various regions.

Currently the government is calculating in details the increase in fuel subsidy based on the predicted oil prices of US$ 50-US$ 80 per barrel with the same projected consumption of 59.6 million kiloliters a year.

Ideally BBM stocks are enough for 22 days, but early July the stocks were enough only to cover requirement for 18.3 days. Pertamina, however, said it would raise the stocks to cover 22 day requirement.

Based on a report issued by Pertamina, Premium gasoline requirement per day in the country averages 45,000 kiloliters. The daily requirement is 70,000 kiloliters for ADO and 30,000 kiloliters for kerosene. With a guarantee from he government to increase stocks and quota, Pertamina cancelled plan to cut supply later in July.

In he first 5 months of this year the government disbursed only Rp 31.7 trillion of the BBM subsidy. Now there are still Rp 44.8 trillion remaining of the subsidy to be disbursed by the government for this year.

The higher he oil price, the larger the subsidy to be paid by the government. The fuel subsidy could rise to Rp 120 trillion if the oil price averages US$ 50 per barrels or Rp 138 trillion if the oil price averaged at US$ 60 per barrel.

Through a presidential instruction (Inpres) No 10/2005 issued on July, 10, 2005, the president ordering all state companies to economize on fuel by not using electric lighting when it is not necessary, reducing the use of air conditioners and official cars, etc. The Inpres will be effective for 6 months.
BBM selling prices for industrial sector and International Bunker

Types of Selling prices
BBM Industrial sector International Bunker
 (Rp/liter) (US$/liter)

--Premium 4,060 --
 VAT 369.09
 Without tax 3,691
--Kerosene 4,940 --
 VAT 449.09
 Without tax 4,491
--ADO 4,740 0.495
 VAT 430.91 0.045
 Without tax 4,309 0.450
--IDO 4,560 0.476
 VAT 414.55 0.043
 Without tax 4,145 0.433
--Fuel oil 2,900 0.303
 VAT 263.64 0.028
 Without tax 2,636 0.276

Source: Pertamina

Note: ADO = Automotive diesel oil

IDO = Industrial diesel oil

BBM consumption, May 2005

 Types of BBM Consumption

Premium 45,000
ADO 70,000
Kerosene 30,000

Source: Pertamina

Estimate of subsidy and prices of crude oil

Prices of crude oil BBM subsidy
 (per barrel)

 US$ 40 Rp 76 trillion
 US$ 50 RP 120 trillion
 US$ 60 Rp 138-Rp 150 trillion

Source: Mineral resources ministry
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Title Annotation:MINES AND ENERGY
Publication:Indonesian Commercial Newsletter
Date:Jul 12, 2005
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