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Pertamina banking on unsubsidized LPG business

State-owned oil and gas giant Pertamina is expecting to book bigger profits in the non-subsidized liquefied petroleum gas (LPG) business by the end of this year, thanks to an adjustment in prices and the launch of a new product

Raras Cahyafitri (The Jakarta Post)
Jakarta
Mon, October 26, 2015 Published on Oct. 26, 2015 Published on 2015-10-26T17:48:55+07:00

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tate-owned oil and gas giant Pertamina is expecting to book bigger profits in the non-subsidized liquefied petroleum gas (LPG) business by the end of this year, thanks to an adjustment in prices and the launch of a new product.

Pertamina marketing director Ahmad Bambang said the company'€™s non-subsidized LPG business recorded US$67 million in profits year-to-date.

'€œWe are expecting to see around $90 million by the year-end. That includes our new product of 5.5-kilogram LPG canisters,'€ he said.

Ahmad expected Pertamina would be able to sell up to 100,000 canisters of the 5.5-kilogram variant by the end of the year.

Late last week, Pertamina launched the new 5.5-kilogram LPG canister, which is aimed at supplying customers who need less LPG than that provided by the existing 12-kilogram canister, but more than is contained in the green 3-kilogram canister. As the price for 5.5 kilograms is more affordable than that for 12 kilograms, it is also expected to encourage customers of the subsidized 3-kilogram canisters to switch to using the new one.

Rising consumption of the 3-kilogram LPG canisters has been a concern of Pertamina and the government. The distribution of the subsidized LPG has been mired by misuse as high income people and industries have reportedly been taking advantage of the subsidized product meant for low-income people.

In this year'€™s state budget the government allocated a total of 5.77 million tons worth of subsidized 3-kilogram LPG canisters.

The government had introduced a series of plans to control the distribution of the subsidized LPG, but to no avail.

The Energy and Mineral Resources Ministry'€™s oil and gas director general, IGN Wiratmaja Puja, said he expects that Pertamina'€™s new 5.5-kilogram LPG canister would sell.

'€œIf the new variant can reach 23 percent of the market share, it will automatically reduce our subsidies by Rp 3 trillion per year,'€ Wiratmaja said.

Providing the non-subsidized 5.5-kilogram LPG canisters will also help prevent Pertamina from exceeding the subsidy quota by the year-end. Pertamina has suffered in its non-subsidized LPG business, partly because it has to sell the product at lower than its economic price. Last year, the company incurred around $340 million in losses in its non-subsidized 12-kilogram LPG canister business. Early this year, Pertamina raised its 12-kilogram LPG canister price as part of an effort to manage profits.

The company also benefited from the current declines in the benchmark CP Aramco price in consequence of plunging world oil prices.

As global crude oil prices keep declining, Pertamina is struggling to perform efficiency measures and maximize its potential.

The company reported $31.99 billion in revenues as of September, a decline of about 42 percent compared to the $55.17 billion in the same period last year. Its net profits stood at $914 million as of the end of September this year, or around 47 percent drop compared to the $1.73 billion made during January to September last year.

The company is estimating it will book $40 billion in revenues by this year-end. Meanwhile, its net profits are expected to be in the range of $1 billion to $1.2 billion by year-end.

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