Makalah Kurtubi

8/6/2019 Makalah Kurtubi

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Dr KurtubiPERTAMINA Head Office, and

Center for Petroleum and Energy Economics Studies (CPEES)Jakarta, Indonesia

Phone: 62-21-471-8570 and 62-21-381-6825E-mail: [email protected] and [email protected]

Presented toThe 26 th Annual Conference of

International Association for Energy Economics (IAEE)Prague, Czech Republic

June 2003


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Liberalization of Oil Industry in IndonesiaI. The Entry Point: Replacing Pertamina Law No.8/1971 with New Oil and

Gas Law No.22/2001: Mining Rights (Mining Authority) removed fromPertamina (State Oil Company), Natural Monopoly and vertically integrateddismantled, free market and full competition applied.

II. Besides some positive impacts, there will be some negative impacts on:1. the efficiency of petroleum fuels: the cost or price of

petroleum fuels at end users will be more expensivethan that of natural monopolist. Benchmark: market priceat the pump using: Untaxed retail Pump Price (URPP), and

2. the competitive advantage and the efficiency of Indonesian LNG industry will be harmful, i.e, security

of supply for the buyers, cost of money for developingLNG plants and facilities will be more expensive, and finally will hitthe competitiveness of Indonesian LNG .


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I. BENCMARK OF EFFICIENCY:WHAT IS THE MARKET PRICEOF GASOLINE AT THE PUMP

STATION?:

SURVEY REPORT OFWORLD GASOLINE RETAIL PRICES


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25.8% (US$0.30)

25.7% (US$0.30)23.5% (US$0.25)20.8% (US$0.22)24.9% (US$0.25)20.3% (US$0.21)26.1% (US$0.26)25.4% (US$0.24)28.3% (US$0.27)34.7% (US$0.31)25.8% (US$0.23)28.9% (US$0.26)41.3% (US$0.41)35.6% (US$0.26)70.0% (US$0.25)US$0.32US$0.24

74.2%

74.3%76.5%79.2%75.1%79.7%73.9%74.6%71.7%66.3%74.2%71.1%58.7%64.4%30.0%-Negative (Subsidy)

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1.171.061.031.011.011.000.960.950.910.900.901.060.750.36-0.18

1. Norway

2. UK3. Finland4. Netherlands5. Denmark 6. France7. Italy8. Belgium9. Sweden10. Austria11. Germany12. Portugal13. Japan14. Luxembourg15. USAUntaxed Retail Pump Price (Average)Indonesia

Untaxed Retail PumpPrice in % and (US$)

Gasoline TaxComponent(%)

Taxed RetailPump Price(US$/Liter)

Country

Unleaded Gasoline Retail Price, Tax Component and Untaxed Retail Pump Price InOECD Countries, as of November 2000

Source: Fuel Prices and Vehicle Taxation by Gerhard P. Metschies, October 2002, Pertamina and OECD Publications.


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II. COST OF PETROLEUMFUELS IN INDONESIA :

1. UNDER VERTICALLY INTEGRATED

SYSTEM (NATURAL MONOPOLYWITH BIG SIZE/economy of scale):18 cents (Zero subsidy)

2. UNDER UNBUNDLING SYSTEM(LIBERALIZED SYSTEM with smallersize): 24 cents


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COMPARISON BETWEEN LIBERALIZED SYSTEM

AND VERTICALLY INTEGRATED SYSTEMOF DOWNSTREAM OIL INDUSTRY IN INDONESIA

Exploration&

ExploitationRefinery End Users

Storage/Wholeseller

Trans-Ports &Distribu

tion

Retail/Pump

Station

Crude Oil:International Price

New systemLaw No.22/2001:UnbundlingWith transactionCosts + Taxes

Old SystemLaw No.8/1971:VerticallyIntegrated System

Cost+

Profit

Cost

LLC LLC LLC LLC : separate limitedliability company

Cost+

Profit

Cost

Cost+

Profit

Cost

Cost+

Profit

PumpMargin

Market

Price= URPP

AverageTotalCost

URPP of Petroleum Fuels >> ATC of Petroleum Fuels24 Cents >> 18 Cents


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Average Cost of Petroleum Fuels at End Users Throughout Indonesia(US Cent Dollar per Liter)

Fiscal Year Operating Cost(Controlled byPERTAMINA)

Crude Run Costs +Imported PetroleumFuels(Uncontrollable)

Total Cost of Petroleum fuels atend user

1994/19951995/19961996/1997

1997/19981998/199920002001

4.213.813.68

3.232.211.881.73

11.6212.4714.62

13.387.9616.5016.32

15.8316.2818.30

16.6110.1718.3818.05

Declining: The nature of Natural Monopolist

Mostly influencedby World Crude Oil price


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MONOPOLY WI TH DECREASIN G M ARGI NALCOST: NATURAL M ONOPOLY

QuantityQm Q iQ i Q bepQ bep Q sQ s

P i

P s

Price

P m

P r

P m = Monopoly PriceP r = Zero SubsidyP s = Socially OptimumP i = International Price

LRAC

LRMC

D

International/Singapore Price

MR


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Empirical Studies on Vertical Integration

Conducted by: Tasneem Chipty (Charles River Associates, Boston)

Vertical Integration, Market Foreclosure, and

Consumer Welfare in the Cable Television Industry

Conclusion:

Vertical integration does not harm, and may actually benefit,

consumers because of the associated efficiency gains

(The American Economic Review, June 2001, Vo. 91, No.3)


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III.

The Impact Liberalization on IndonesianLNG industry

1. LNG Plant could be treated as a profit center, so every body

could enter this market. This will reduce State revenues fromLNG. Under vertically integrated system (old system), LNGplant was not a profit center in order to maximize revenues forboth the State and PSCs who hold risk in their upstreambusiness. In fact, LNG plant does not create any value added,because LNG will be re-gasified in consuming country

2. LNG Marketing is not under one roof because Pertamina willnot be a Mineral Rights holder. No Single Seller anymore: therewill be competition among Indonesian LNG. The possibleconsequence dealing to the security of supply for the buyers,the credibility of Pertamina in the World LNG industry and

Financiers.


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Indonesian LNG Industry System based on Law No.8/1971Indonesian LNG Industry System based on Law No.8/1971

Gas Gas Field Field Development Development Gas Transmission

Gas Transmission LNG Cargoes LNG Cargoes Receiving Receiving Terimanl Terimanl

PSC PSC PERTAMINA:PERTAMINA:Single Seller.Single Seller.

Project Financing Project Financing Requirement Requirement

Third Parties Third Parties LNG Buyers LNG Buyers

TRUSTEE TRUSTEE PAYING AGENT,PAYING AGENT,

New York New York

Bank Bank Syndicates Syndicates

LNG Plant LNG Plant

Arus Arus Pembayaran Pembayaran LNG:LNG: Arus Arus Investasi Investasi ::Pembentukan Pembentukan Trustee:Trustee:

FOB Price= A

CIF PriceLiquefiction Cost= X

Piping Cost= Y

E & P Cost (PSC)= Z

LNG Revenues = A (X + Y + Z)GOI: 65% - 70%PSC: 30% - 36%


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5.637 839 1.058 3.738 2002

6.825 837 1.475 4.512 2000

3.856 329 850 2.677 1995

4.048 159 4913.397 1990

3.801- - 3.8011985

2.327 - - 2.327 1980

80 - - 80 1977

Total Taiwan Korea Japan Year

LNG Export (US$ Million)

Note: Export to Korea and Taiwan started in 1986 and 1990 with the value of US$14 million and US$159 million respectively


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IV.The Future of

Indonesian Oil Industry: Still Optimistic

1. High Potential of Hydrocarbon Resources

2. Long experience with International OilCompanies

3. Initiator of Production Sharing Contracts: havegiven big benefit to the State.


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HYDROCARBON RESOURCES ININDONESIA

I. BASINS:

II. RESOURCES (1.1.2000) :

III. PROVEN AND POTENTIAL

RESERVES (1.1.2000) :

IV. PRODUCTION (2000) :

60

EXPLORED : 38

NOT YET EXPLORED : 22

14 PRODUCTION

9 DISCOVERED15 NO DISCOVERY

OIL : 77 BILLION BARELS

GAS : 332 TRILLIUN CUBIC FEET (TCF)

OIL : 5,11 + (1,82 + 2,74) = 9,67 BILLION BARELS

GAS : 80,83 + (36,39 + 29,70) = 146,92 TCF

GAS : 2,26 TCF

OIL : 0,48 BILLION BARELS


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PRODUCTION SHARING CONTRACTORS

A. P A R T I C I P A N T S : 60 OPERATOR S INCLUDING 5 SUPERMAJORS (EXXONMOBIL, CHEVRON TEXACO, BP AMOCO ARCO, TOTALFINA ELF, SHELL) . MAJORS (CONOCO, REPSOL, UNOCAL,SANTA FE, GULF, PREMIER, LASMO, INPEX, JAPEX, DLL.)AND INDEPENDENTS.

B. WORKING AREAS - 160 :PRODUCERS : 57 (12 SUPERMAJORS, 15 MAJORSDAN 30 INDEPENDENTS)

EXPLORATION : 103 (19 SUPERMAJORS, 32 MAJORSDAN 52 INDEPENDENTS)

C. RESERVES (1.1.01) - OIL :

D. PRODUKSI (2000) - OIL :

E. PENDAPATAN (REVENUE)

SUPERMAJORS (70 %), MAJORS(18 %), INDEPENDENTS (12%)- G A S : SUPERMAYORS (80 %), MAYORS(15 %), INDEPENDENTS ( 5%)

SUPERMAJORS (68 %), MAJORS (28 %), INDEPENDENTS ( 4%)- G A S : SUPERMAYORS (82 %), MAYORS (15 %), INDEPENDENTS ( 3%)

(1966 s/d 2000) : GROSS REVENUE : US $ 348,- BILLION (100 %)= COST RECOVERY . : US $ 69,- BILLION ( 20 %)= NET CONTRACTOR SHARE ... .. : US $ 48,- BILLION ( 14 %)= INDONESIA SHARE ... : US $ 231,- BILLION ( 66 %)


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Conclusions:1. Applying liberalization and privatization in the oil industrysector in Indonesia will bring some consequences on theefficiency of the industry. It is important to look for thestrategy to implement the program without sacrifice theefficiency.

2. In the long run, petroleum fuel pricing policy in Indonesia,

should be integrated with both primary and final energypricing policies.3. Before applying gasoline tax, it needs to increase price

gradually by considering purchasing power of the people and

market structure.4. In order to avoid any disadvantages, such as in the domestic

petroleum fuels and LNG industries in Indonesia, the NewLaw on Oil and Gas should be opened to be amended.

Makalah Kurtubi

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