Jakarta – Indonesia's state-owned oil and gas company, PT Pertamina, is broke and it has asked for a government bailout, as excessive costs have put the company's operating cash flow, and the company's future, in critical condition.
Pertamina's expenditures currently are surpassing its income due to its obligation to meet domestic fuel oil demand with fuel oil bought on the international market at sharply inflated prices, a spokesman said.
"With a liquidity position below 2 trillion rupiah [US$215 million], the company is already bleeding," Pertamina's director of finance, Alfred Rohimone, told a hearing on Tuesday with the House of Representatives' commission on mines and energy.
At the end of April, Pertamina had cash reserves of less than $215 million, but the company's costs for importing crude oil and fuel products exceeded $540 million per month. The company's policy of making cash advance payments to purchase crude oil have also added to its loss of cash flow, Rohimone said.
As a result, the company, which imports some 300,000 barrels of crude oil and fuel products a day at international market prices, is on the brink of running a deficit, and has asked the Indonesian government to help it avert a crisis.
The country's current state budget has allocated some Rp14.5 trillion in fuel subsidies to Pertamina, based on an assumption of oil priced at an average of $22 per barrel. Pertamina should receive subsidy compensation for that entire amount, Alfred said, but in practice, with payments being spread over 12 months, the company only receives 70 percent of the total compensation.
At present, crude oil prices are hovering at a record high of more than $40 per barrel, and the government is scheduled to submit a revision to the 2004 state budget to the House of Representatives as early as July. At that level, according to Pertamina, the fuel subsidy could nearly triple to some Rp40 trillion ($4.35 billion), causing a larger deficit.
Pertamina has already had to spend Rp40 billion to buy crude oil at the price of $35 per barrel, Rohimone said. As a further consequence of the price rise, it has used Rp3.6 trillion of its monthly fee to the government to buy oil, he added.
"Pertamina must cover any shortage in payment with its own funds, Rohimone said. "But under the present unfavorable financial circumstances, the company may no longer be able to do so."
According to Rohimone, the company's current financial condition is largely linked to the previous management's policy of spending a huge amount of money to pay debts. The company had cash reserves of Rp23 trillion ($2.5 billion) in 2001, but said they were depleted through the repayment of government loans.
"The previous management in 2002 spent a lot of money to pay debts on several long-term projects. As a result, we are now broke," Rohimone said.
The lack of operating revenue has forced Pertamina to cancel several projects, and the company said it may liquidate three money-losing subsidiaries as part of its program to improve efficiency.
Pertamina has 14 wholly owned subsidiaries in various business areas including non-oil sectors. But based on an evaluation of the 14 companies, three of the subsidiaries will be liquidated and three others merged into other, better performing companies, Pertamina President Ariffi Nawawi said.
Pertamina also has decided to delay planned exploration activity in Iraq's Western Desert field until the United States has handed over legal and sovereign power to an Iraqi authority.
"We heard that the transfer of power will take place in June 2004. We will wait until this has happened," Pertamina's director of Downstream Industries, Bambang Nugroho, said on the sidelines of the meeting on Tuesday.
Pertamina had planned to begin its exploration activity in the Western Desert field in Iraq in March, but due to increased tensions in Iraq and reports that the US would hand over power to Iraqis, it has decided to postpone the plan's execution.
The company's losses, on top of costs that have exceeded government subsidies, have worsened Pertamina's economic health.
As a result, finance director Rohimone has forwarded several alternatives to the government to help overcome the company's rising deficit. Among them is a request for the government to pay Pertamina its marketing fee on time and to pay Pertamina the fuel oil subsidy compensation funds in advance, based on the actual price and calculations of asset reappraisals.
Rohimone has also asked that the government take over the company's obligation to pay tax and duties on public service operations.
"Short-term measures to cope with the financial crisis in Pertamina would be to release funds from the escrow account, a clear marketing fee [and] on-time payment of subsidy," Rohimone said. "A long-term solution would be improving the structure of the fuel oil price."
In addition, he said the company should review new investment projects, especially those that burden its cash flow.