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Tuesday, Sep 23, 2014

Asia

Indonesia's Widodo unveils energy action plan, to halt Petral oil trading

Reuters | Tuesday, Sep 23, 2014

JAKARTA - Indonesian president-elect Joko Widodo plans to halt operations at Pertamina's energy trading unit Petral to allow for an audit of its operations as part of efforts to fight alleged fuel smuggling and corruption, a senior adviser to Widodo said.

In his first energy action plan since being confirmed as president-elect by the Constitutional Court last month, Widodo will also impose major changes at state-owned Pertamina and cut coal exports to ensure ample domestic supplies for power plants.

The former OPEC member has been hit hard by falling oil production, insufficient gas infrastructure and a series of corruption scandals that have led to the downfall of top energy officials. The situation has scared off foreign investors and forced Indonesia to become a major fuel importer, the main driver behind the country's fiscal and current account deficits.

"The (new) government's action plans include ensuring the presence of the state to become a commander in making the right decisions, quickly and decisively to reform energy sector governance," said Hasto Kristiyanto, a senior figure in Widodo's transition team, in a statement released late Monday.

The new administration plans to suspend the activities of oil traders at Petral and give responsibility for purchasing fuel and crude oil to its state-owned parent company during the investigation. It did not say when it would take such action.

"Petral will be frozen and an investigative audit will be conducted," Kristiyanto said. "Purchases of crude and fuel will be conducted by Pertamina and executed in Indonesia."

Pertamina and Petral officials were not immediately available for comment.

Petral, which started trading for Pertamina in 2009, trades Indonesian as well as foreign crude oil and oil products. Its markets are mostly in the Asia Pacific region as well as the United States, Europe, Middle East and Africa.

Government officials estimate that as much as 5 per cent of Indonesia's fuel is smuggled and sold to neighbouring countries such as Singapore and Malaysia.

Indonesian police this month said that four people, including two navy contractors and an official from Pertamina, were arrested for their involvement in a five-year-long fuel smuggling operation worth millions of dollars.

Widodo plans to also impose major changes at Pertamina. "Pertamina will be transformed into a non-listed public company to improve managerial capability ... and national human resources," Kristiyanto said. "Pertamina must be free from political interference." Pertamina will also be asked to take responsibility for the appointment of oil and gas work areas, contract extensions, logistics and production controls, and the management of expiring energy contracts. Kristiyanto did not specify which contracts would be affected.

Oil and gas contracts held by Exxon Mobil Corp, Total SA, Chevron Corp and PetroChina Co Ltd are due to expire during Widodo's five-year term.

Widodo also wants to reduce coal exports to provide more supplies to power plants, but Kristiyanto did not say by how much shipments would be reduced.

Indonesia is the world's top exporter of thermal coal, but the outgoing government has imposed a series of regulations that are expected to hurt shipments starting next month.

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