T

he reform team for the oil and gas sector has recommended that state-owned PT Pertamina stop importing the registered octane number (RON) 88 specification gasoline so as to diversify the company'€™s supply sources.

The recommendation is in the process of being signed and sent to the Energy and Mineral Resources Ministry, according to Djoko Siswanto, a member of the team, which was recently established to review all aspects of the upstream and downstream oil and gas business in the country.

'€œCurrently, we are blending the RON 88, making us dependent on Singapore. We want things to be easier. We should switch to RON 92, which is used all over the world, so that we can obtain gasoline from everywhere, not only the RON 88 type from Singapore,'€ Djoko said after the team'€™s meeting on Thursday.

Although other countries have changed to higher gasoline specifications, which burn more cleanly and help engines to perform better, Indonesia still uses the lower-specification gasoline, in part because of its refineries'€™ specifications and capabilities.

There are currently six refineries in the country operated by state-owned oil and gas giant PT Pertamina with a total combined capacity of more than 1 million barrels per day (bpd) in capacity. However, because of their age, the refineries are running below full capacity. All of the refineries are only able to produce RON 88 gasoline, except one located in Balongan in West Java.

Pertamina distributes RON 88 gasoline under the label '€œPremium'€, a product that remains subsidized by the government. Premium is currently priced at Rp 8,500 (US$0.68) per liter, 30 percent higher than before the cut in government subsidies on Nov. 18.

'€œThe recommendation is for imports. For products from domestic refineries, we hope that they will gradually improve and produce gasoline of a better quality than RON 88,'€ Djoko said, rejecting concerns that the recommendation would create uncertainty for RON 88 products produced within the country.

Separately, Pertamina marketing and trading director Ahmad Bambang raised concerns on the supply of RON 88 gasoline should the imports be stopped.

Ahmad said that although all refineries in the country have produced RON 88, it would only able to meet 50 percent of the demand in the country.

'€œIf premium or RON 88 is eliminated, it means that we will need to import more HOMC [High Octane Mogas Component] or Pertamax, which will take imports to over 80 percent. It will weaken our energy security,'€ Bambang said in a text message.

Given the current specification, Indonesian refineries produce limited RON 92 gasoline containing much naphtha. In order to process the naphtha into Premium, the naphtha must be mixed with HOMC, whose specification is equal with Pertamax Plus or RON 95 products, according to Bambang.

Pertamina recently said that it planned to upgrade and increase the capacity of five refineries to be able to process more complex crude oil and produce products with higher specifications.

Following the upgrades, Pertamina is aiming to increase its refineries'€™ capacity to a total of 1.68 million bpd from the current effective capacity of 820,000 bpd. It also estimates that gasoline production will increase by 3.3 times to 630,000 bpd from 190,000 bpd, diesel production by 2.4 times to 770,000 bpd from 320,000 bpd and avtur (aircraft fuel) output to 120,000 bpd from 50,000 bpd.

An analyst from energy thinktank Reforminer Institute, Komaidi Notonegoro, said the government should determine the subsidy mechanism if it intended to follow the recommendation.

'€œWill there be two products, for example subsidized and non-subsidized Pertamax [Pertamina'€™s higher-octane brand], or will subsidies stop entirely?'€ he asked.

Komaidi added that the impact of using higher-octane gasoline, such as RON 92, would only slightly increase the price, as the difference in production cost between RON 88 and 92 was low, between Rp 100 and Rp 300.

The government is currently considering implementing a fixed subsidy for fuel. Currently, the subsidy is disbursed based on consumption volume. Realization of the disbursed volume is frequently more than the quota, creating a heavier burden for the state budget.