The Jakarta Post
State-owned oil company Pertamina and its subsidiary gas distributor Perusahaan Gas Negara (PGN) have cut their revenue targets this year as the government’s partial lockdown measures to halt the spread of COVID-19 has severely affected their businesses.
Pertamina president director Nicke Widyawati said on Thursday that the 52-year-old company had been hit hard by a “triple shock” of crashing crude oil prices, falling oil demand and a weakening rupiah-US dollar exchange rate.
“Today [Thursday], nationwide fuel consumption fell 34.9 percent from sales in January and February,” she told a teleconferenced hearing with the House of Representative members. “This is the lowest sales figure in Pertamina’s history.”
Pertamina and PGN, like many other big Indonesian companies, have revised down their growth projections for this year as Indonesia, the country with the highest COVID-19 death toll in Southeast Asia, imposed large-scale social restrictions (PSBB) to stop the spread of the new coronavirus.
Many Indonesian cities are set to implement the partial lockdown in their respective jurisdictions to contain the pandemic, following in the footsteps of Jakarta, as well as Bogor, Depok and Bekasi in West Java and Tangerang, Banten.
Nicke said that partial lockdowns would “further pressure” fuel demand, which may cause a decline in revenue by up to 45 percent in the worst-case scenario, in which the Indonesian Crude Price (ICP) reaches US$31 per barrel and the rupiah exchange rate stands at 20,000 to the US dollar.
In the second-worst-case-scenario, Pertamina’s revenue would fall by a gentler 38 percent as the ICP hits $38 per barrel and the exchange rate reach 17,000 to the US dollar.
The sharp decline in the rupiah exchange rate has caused a significant increase in crude oil procurement costs in the local currency.
The company initially set a target of $52.4 billion in revenue and $8 billion in capital expenditure this year. The ICP was last recorded at $34.23 in March and the rupiah exchange at 15,787 on Thursday, according to Bank Indonesia.
In anticipation of lower revenues, the company plans to slash its capital expenditure by 23 percent and operational expenditure by 30 percent. Expenditure cuts include those for upstream investments, project developments, operational budgets and work trips, among others.
Meanwhile, gas company PGN estimates that gas sales will fall by 31.59 British thermal units per day (Bbtud) this year from the initial target of 980 Bbtud.
Almost two-thirds of the shortfall comes from the closure of many industries, particularly ceramic and steel industries on Java island, due to the coronavirus pandemic. The remaining shortfall comes from declines in new customers and in non-manufacturing usage such as gas-fired power plants.
“The decline will reach its lowest level around the months of May, June and July,” PGN president director Gigih Prakoso said at a virtual press conference on Thursday.
Due to falling demand, PGN, which also functions as Pertamina’s sole gas subholding subsidiary, is projected to book a 14 percent lower income than expected in 2020 with zero percent year-on-year growth under the worst-case scenario.
The gas company has three strategies to minimize losses, including renegotiating gas purchasing deals with suppliers and revising planned investments this year, such as those related to gasifying diesel-fired power plants and expanding households gas pipelines.
Gigih noted that a similar decline in gas demand was seen in Asia Pacific where, according to S&P rating agency data, second-quarter gas demand for the manufacturing sector will be around 560 Bbtud, down 15 percent from the previous quarter.
Despite Pertamina’s lower income, union leader Ari Gumilar of the Federation of Pertamina United Labor Unions (FSPPB) told The Jakarta Post that the company had neither furloughed employees nor cut wages “and there are no talks of going there yet”.
The union, he continued, was aware about the possibility of wage cuts under the worst-case scenario “but Pertamina has an agreement between directors and the union where we have to hold a discussion first”.