Pertamina’s PLN monopoly may be history

State Electricity Company (PLN) may appoint domestic fuel refiner PT Trans Pacific Petrochemical Indotama (TPPI) as a supplier of diesel fuel for its power plants, a decision that would end Pertamina’s monopoly in this domain.

“TPPI is one of the strongest candidates, as our due diligence found that the company is technically capable of delivering the fuels,” PLN primary energy director Nur Pamudji said Sunday.

TPPI operates an integrated petrochemical refinery in Tanjung Awar-awar, Tuban, East Java. Pertamina currently has a 15 percent stake in TPPI, while PT Tuban Petrochemical Industries (Tuban Petro) has a controlling stake of 59.5 percent. The remaining 25.5 percent is owned by foreign shareholders.

In May, PLN announced tenders high speed diesel (HSD) suppliers for its power plants in five locations: the Muara Tawar power plant in Bekasi, West Java; the Tambak Lorok plant in Central Java; Gresik and Grati in East Java; Belawan in North Sumatra; and Tanjung Priok and Muara Karang in North Jakarta.

The auction aimed at securing diesel supply for the plants for the next four years. PLN is seeking around 100,000 kiloliters of HSD a year for Muara Tawar; 200,000 kiloliters a year for Tambak Lorok; 150,000 kiloliters for Gresik and Grati; 300,000 kiloliters for Belawan; and 500,000 kiloliters a year for Tanjung Priok and Muara Karang.

Nur Pamudji said TPPI had taken part in all five tenders, but declined to provide details as to which power plants the company had potential to win tenders for. He said the process had not been finalized, pending approval by the board of directors and board of commissioners.

“We expect to announce the results by the end of September,” he said.

Aside from TPPI, PLN has two other strong candidates in the tenders: Pertamina and PT Shell Indonesia, a local subsidiary of Royal Dutch Shell Plc.

If TPPI is appointed to supply fuel to PLN, the company will be the first non-Pertamina domestic refiner supplying fuels to PLN, which is the biggest consumer of subsidized fuels. Earlier, domestic company PT Aneka Kimia Raya (AKR) Corporindo was one of the suppliers, but this company does not produce fuel by itself.

“TPPI is not only a fuel distributor, but also a producer,” Nur Pamudji said.

The more suppliers, the better for PLN, he said.

“There will be competition [in PLN’s fuel procurement] and this will help us reduce power costs, which in the end will benefit the country [with less spent on subsidies],” Nur Pamudji said. He added that the three strongest supplier candidates in the last tenders had offered the lowest prices seen in the last three years, meaning that the participation of more bidders had made the process more competitive.

However, TPPI’s participation in the fuel auction has drawn strong criticism from several lawmakers. The criticism centers around the fact that TPPI has around US$600 million in debts owing to Pertamina. The debts were from a 2004 swap-product agreement in which TPPI failed to fulfill its obligation, Pertamina says.

Aside from protests from several lawmakers, several unidentified groups have also protested asking PLN to scrap TPPI from its supplier candidate list.

Despite its debts, Nur Pamudji said, TPPI was able to deliver the fuel to the plants.

“Our due-diligence found that [TPPI] is able to keep its end of the deal. Our team visited the company’s refinery in East Java and it is technically feasible,” Nur Pamudji said. According to PLN’s due diligence process, TPPI has an HSD production capacity of 2 million kiloliters per year. The company currently produces around 58,000 kiloliters a year.

PLN has estimated that its oil-based fuel consumption will reach 9 million kiloliters this year. This is expected to decrease to 5 million kiloliters next year as more coal-fired power plants, developed
under the government’s 10,000 megawatt fast-track program, will begin operation.