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State-owned oil and gas company Pertamina has begun to feel
the pinch of increasingly steeper competition in the oil and gas sector
following the issuance of a 2001 government regulation that stripped
the company of its monopoly,
A subsequent government regulation, issued in 2003 and changing
Pertamina into a pure business entity, has added to the pressure on the
company to transform itself into a more efficient energy firm.
For Pertamina, which earned a reputation in the past for corruption,
collusion and nepotism, changing its direction into a business entity
oriented toward turning a profit is proving to be a difficult task.
Even now, many senior government officials and politicians still regard
Pertamina and other state firms as cash cows there for the milking.
Speaking to journalists in Jakarta recently, Pertamina president
director Ari Soemarno said he hoped to transform Pertamina into a
world-class and efficient company within five years in order to be able
to survive the new free market era.
"We're optimistic that we can realize this in five years," he said.
Under a government regulation issued in 1971, Pertamina was the
country's single oil and gas regulator and operator, holding exclusive
rights in the exploration, production and distribution of oil and gas.
But now, with the new regulations, other players have been allowed to
enter the oil and gas sector here on what is supposed to be a level
playing field.
Although Pertamina still holds the exclusive right to sell subsidized
fuels, Shell, Europe's second largest oil company, and Petronas of
Malaysia have been allowed to enter the fuel retail market to sell
non-subsidized fuels, such as high-octane gasoline.
Shell operates three stations in Greater Jakarta and has plans to build
two more stations. Petronas has built one station in the southern part
of the capital and it also plans to expand its retail business.
Soemarno said recently that over the next five years Pertamina needed
an investment of US$1 billion to improve its retail stations and
storage facilities across the country.
The company has set a target of building 700 gasoline stations this
year and 1,000 stations next year, in cooperation with local companies.
It has offered private companies the opportunity to take part in
opening new gas stations under a franchise business arrangement.
"So far this year, 2,426 investors have applied to develop gasoline
stations. Some 630 of them have been approved," Soemarno said.
He said construction of the gasoline stations would begin after the
investors met all of Pertamina's requirements, including the payment of
franchise fees.
The company also plans to invest $22 million to build 55 gasoline
stations on its own next year. The construction of one station will
cost about Rp 3 billion (US$330,000), depending on the price of the
land.
In addition, the state oil firm plans to revamp six of its gas stations
in Jakarta so they can serve as models for other Pertamina stations
across the archipelago.
It also plans over the next four years to build 500,000 kiloliters of
fuel storage to cope with expected increases in the country's fuel
demand.
Hanung Budya, Pertamina's deputy director of trading and marketing,
said in Bali recently the company would also need an additional storage
capacity of 300,000 kiloliters in the next four years.
"We will build fuel facilities in East Java and West Java," he said.
The company currently depends on leasing tankers to provide additional
stocks if demand increases in certain distribution areas.
But despite its ambitious plans, there are concerns the company will be
unable to meet its targets on schedule. Problems ranging from a
shortage of funds, the unchanged mind-set among government officials
toward Pertamina and aging workers still stand in the way of
transforming the company.
"We're facing a shortage of funds to finance our transformation
projects. Actually, that money could come from our big profits, but we
only retain a small amount of our earnings every year," Soemarno said.
During an informal discussion with a number of Pertamina officials,
they complained that government officials, particularly politicians,
still considered the company a cash cow that could be tapped every time
they needed funds.
In addition, the company's human resources are not yet competitive
enough to face the more open competition. With 45 percent of its
workers aged between 41 and 50, and 41 percent above 50 years old, the
company's management doubts it can improve its productivity and
efficiency.
"But we cannot just accept the situation as such. The competition out
there is getting steeper, and we have to transform ourselves in order
to benefit from the new conditions," Soemarno said.
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