Review urged of policies on retail fuel market

Ika Krismantari, The Jakarta Post, Jakarta

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.