S

tate energy giant Pertamina is expected to face more challenges in the coming days not because of stiffer competition, but the greater financial burden as a result of the policies of the administration under President Joko “Jokowi” Widodo.

The government has ordered Pertamina to ensure that low-price Premium gasoline is available across the country, which is expected to affect the company’s finances.

Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira said the tasks assigned to Pertamina are a time bomb that would subsequently hit the government in the long-term. Bhima believes the government’s recent decision to compensate Pertamina by giving the company new oil and gas working contracts would not solve its financial problems in the long term.

“To conduct exploration they need lots of money, which is now not advantageous for the company,” he said on Thursday. “Therefore, I might say this, [populist policy] is false policy, because the government itself will have to solve Pertamina’s financial problems in the future.”

There are two policies that would affect Pertamina’s cash flow, namely ensuring Premium gasoline availability in the country and the one price policy until 2019.

Bhima quoted data from the Central Statistics Agency (BPS), which shows the annual deficit in the oil and gas sector stands at US$8.5 billion, while from January to April BPS has recorded a $700 million deficit.

“It is true that we [the government] cut 70 percent of energy subsidies in the last three years, but the truth is the real burden is on the shoulders of Pertamina,” he said.

The government has compensated Pertamina with several oil and gas blocks, including the offshore Northwest Java block, the Mahakam block in East Kalimantan and eight other blocks that will see their contracts with existing operators expire in 2018. The government estimated Pertamina’s net income from the 10 blocks will stand at $850 million annually.

However, the previous management of Pertamina, before the leadership overhaul last month, calculated that with the Indonesian Crude Price (ICP) maintained at $60 per barrel, its net profit would plummet to $1.7 billion this year and $1 billion in 2019.

Pertamina’s new management were muted over the week when asked about the financial burden, saying the blocks allocated were enough and telling the press not to worry.

“Why do you guys [the press] enjoy asking about our burden? Let me ask you this, is society happy when we add more Premium to the market? If the answer is happy then it’s not a problem,” Pertamina acting president director Nicke Widyawati said on Wednesday in Jakarta.

When asked about the possibility of addressing Pertamina’s financial burden, Deputy Energy and Mineral Resources Minister Arcandra Tahar said on Thursday that the government is in discussion about giving Pertamina more incentives soon.

Beside the new blocks, the ministry also plans to increase Solar-branded gasoline subsidies to Rp 1,000 per liter through a windfall from sales of ICP, which in the 2018 state-budget was set at $48 per barrel while in April the price reached $67.

Meanwhile on Thursday, the Finance Ministry announced that the government had disbursed Rp 26 trillion to pay its debt on energy subsidies for Pertamina, Rp 12.3 trillion of which was 2017’s debt.

“We will pay the rest [Rp 10 trillion] of our debt to Pertamina next year,” ministry official Askolani said.

Pertamina has also had to face rising global crude oil prices that exceeded $70 per barrel, with the firm now required to obtain approval from the government before increasing the price of gasoline. Bhima closed his critique by addressing the future of Pertamina as a state holding firm for the oil and gas industry. He believes that if the government continues to sacrifice Pertamina for populist means, it will hamper its business.

“I am afraid that as Pertamina is a holding firm, its subsidiaries, which actually have a healthy cash flow, will be sacrificed too,” he said “For instance, the subsidiaries’ assets will be used as leverage for obligation issuance.”

Marchio Irfan Gorbiano contributed to the story