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Downstream oil and gas regulator BPH Migas needs to review
the tender mechanism for the distribution of subsidized fuels as the
existing setup is unworkable, analysts say.
Indonesia Petroleum Association downstream committee member Debut
Kamajaya said Wednesday that the regulator's policy of only granting
one-year concessions was unrealistic given the high costs that had to
be born by firms in providing storage and distribution facilities if
they wanted to enter the subsidized fuel market.
"Retail fuel distribution is a long-term business as the firm will need
at least 10 years to turn a profit," he explained.
In addition, Debut also called on the regulator to better define a
number of the requirements it had set for would-be distributors as part
of the bidding process.
BPH Migas theoretically offers opportunities to new market players to
take part in the sale of subsidized fuels, which are currently handled
solely by Pertamina. In order to obtain a concession, the other market
players have to participate in a tender based on strict requirements.
Among the requirements is a commitment from the new players to provide
services in at least two different distribution areas.
BPH Migas has divided Indonesia into four distribution areas -- area I,
covering Sumatra; area II, covering Java and Bali; area III, covering
Kalimantan, Sulawesi, Papua and Maluku; and area IV, covering West and
East Nusa Tenggara.
Another requirement is that they have their own support facilities,
including a distribution network and storage facilities.
As a result, would-be new entrants are discouraged from bidding and
Pertamina always ends up being reappointed as the distributor of
subsidized fuels, which account for more than 90 parent of the fuel
sold for transportation purposes.
Two overseas firms, Royal Dutch Shell and Malaysian state oil and gas
firm Petroliam Nasional Berhad (Petronas), which have been selling gas
here since the market was partially liberalized in late 2005, currently
only hold a tiny portion of the market as they are only permitted to
sell unsubsidized fuels.
Other companies, such as British-based BP and France's Total, have
expressed an interest in entering the retail fuel market but have yet
to do so.
BPH Migas chairman Tubagus Haryono said that at least six companies,
including Pertamina, Shell, Petronas, Total, BP and local firm Aneka
Kimia Raya, had bid for concessions to distribute subsidized fuels in
2008.
Even though the bidding process is not over yet, the regulator has said
that the winner would once again most likely be Pertamina as it is the
only bidder that can meet all the requirements.
Shell Indonesia general manager supply Iwan F. Salim said that it would
be difficult for the Dutch company to win a concession given the extent
of the company's facilities at present.
Like Debut, he said that the regulator needed to review its policies on
the deregulation of the retail fuel market if it was really committed
to opening up the country's downstream gasoline business.
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