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Downstream Deregulation: What Does It Mean for Indonesia?
The new Oil & Gas Bill passed in November 2001 states that Pertamina will be turned into a limited liability company by 2004 and a Regulatory Body will be formed to oversee downstream activities. Liberalization of the downstream sector is expected by 2005, when Pertamina's responsibility to distribute fuel to Indonesia ends. With over 230 million in population, and demand growth this decade of some 3% per annum for all oil products, Indonesia remains an attractive market in Asia for foreign oil companies under appropriate conditions.
The passage of this Law creates an amazing opportunity for not only new investors but Pertamina as well. All players and potential players recognize that transforming the downstream sector to one of competition must be a systematic process and will take time. In addition, this transition must be well communicated to the general public, as issues around deregulation can be easily misunderstood.
Regulations supporting the Law are currently being developed which will include more tactical direction regarding several issues such as fuel pricing, asset sharing and supply to the remote areas. Also, the timeline is being discussed and developed for transforming the Indonesian downstream market from a controlled, monopolistic market to one based on a competitive marketplace with many players. The regulation development process has been a group effort with involvement from MIGAS, Bimasena Group, IPA Downstream, the Blue Print Team and Pertamina.
For the Indonesian stakeholders, a competitive Downstream industry may mean:
(1) continued investment in distribution, marketing and retailing infrastructure;
(2) the opportunity for Pertamina to become a commercially focused, integrated and profitable national oil company;
(3) application of international safety and environmental standards in all aspects of Downstream business operations;
(4) skills training for Indonesians through oil company internal training programs, and
(5) an efficient revenue collection system through fuel tax levies.
By the time the IPA Convention happens in October, Downstream Activities Regulations as well as more detailed information around the responsibilities of the Regulatory Body will be in place. The IPA Downstream Committee will thus be poised to deliver current information regarding deregulation in Indonesia, which we believe fits perfectly with the IPA convention theme "Adapting to Change".
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