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Oil contractors forced to sell to Pertamina
The government has sent a negative signal to global investors with President Joko “Jokowi” Widodo ordering on Tuesday state-energy giant Pertamina to buy ready-to-sell oil from private oil and gas contractors in the country
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he government has sent a negative signal to global investors with President Joko “Jokowi” Widodo ordering on Tuesday state-energy giant Pertamina to buy ready-to-sell oil from private oil and gas contractors in the country.
The policy is aimed at reducing imports amid the weakening of the rupiah against the United States dollar.
Energy and Mineral Resources Minister Ignasius Jonan told the press on Wednesday that all large contractors, including three US-based oil giants Chevron, ExxonMobil and ConocoPhillips, had to follow the order.
“They [all contractors] have to sell [to Pertamina] and Pertamina will buy the oil at market price,” he said, adding that the order would be in place permanently.
The order is pending the issuance of a regulation that will likely be in the form of a ministerial regulation. The Upstream Oil and Gas Regulatory Agency (SKKMigas) will facilitate the enforcement of the order.
The ministry’s Oil and Gas Director General Djoko Siswanto said Pertamina would absorb 225,000 barrels oil per day (bopd). Meanwhile, the total national lifting rate is around 775,000 bopd, 550,000 of which goes to Pertamina.
When asked about the effect on the existing oil sales purchase agreements for the contractors, Djoko said the government was discussing two schemes of implementation, one of which was to give Pertamina the right to match the winner of an oil tender.
“Another option is to wait for a sales-purchase agreement [of oil export] to end, and then not extend it,” he said.
Andrew Harwood, Wood Mackenzie research director, said upstream suppliers were unlikely to be impacted, provided they received a “fair” price for their crude oil. He added the likes of Chevron and ExxonMobil usually had their own trading arms, which bought their upstream share of crude and tried to make a margin.
Curbing oil imports is seen by the government as a crucial means of addressing the country’s current account deficit, as Indonesia is still a net oil importer. The country’s oil imports account for around half of the national demand of 1.3 million bopd.
Other than crude oil, official data also shows that Indonesia imported 28.19 million kiloliters of fuel, or 39.7 percent of the country’s total fuel consumption of 70.98 million kl, last year.
Pertamina spokesperson Adiatma Sardjito said that Pertamina was confident its refineries would be able to handle the additional crude oil.
“Our refinery capacity [of around 1 million bopd] is sufficient, and our units are also suitable to refine the type of crude oil from the private contractors,” he said.
Apart from the oil and gas sector, the government is also working on electricity, ordering state-electricity firm PLN to halt power plant projects that are yet to reach financial closure as it would bring in imported products.
The ministry’s Electricity Director General Andy N. Sommeng said only 3 to 4 percent of the total 35 gigawatts (GW) of the flagship electricity program would be halted for a period of about six months.
“[The plan will affect] up to 4 percent of the 35 GW total, 10 GW of which is owned by PLN and the rest by independent power producers [IPP]. We will evaluate all projects that are yet to receive funding as of August,” he said on Wednesday.
Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira said the President’s order to reduce imports in the energy sector was a double-edged sword as it would become another disincentive for investors.
“Though I believe that it would help the rupiah, the order gives the impression that the government is unprepared to issue a policy, as details of the order are still lacking, which will send a negative signal to investors,” he said.
When asked for its response on Wednesday regarding the recent order, US-based oil giant Chevron said it “will seek clarification from the appropriate parties” and could not discuss its marketing of crude oil for commercial reasons.
Meanwhile, US oil giant ExxonMobil vice president of public and government affairs Erwin Maryoto said the company was open for business with any firm, including Pertamina, as long as their interaction was in line with market mechanisms.
