Call Us Now +62 21 390 8271
Call Us Now +62 21 390 8271
[News] Fresh Chance For Investment After The Election
Posted at: 01 May 2019

There are no easy solutions for Indonesia. After Widodo and other election candidates pandered to the masses in the election campaign with populist promises, the atmosphere is not conducive to level-headed debate. The inability to attract investment in refining may be compounded by the whipping up of anti-foreign-investment rhetoric in the campaign.

But every new presidential term provides a fresh chance. The new Widodo government should return to gradually eliminating fuel subsidies, the best way to break the vicious cycle of a weak state-owned oil company and a severely-handicapped downstream sector.

The absence of a road map to phase out fuel subsidies and the government's seeming inability to offer investment incentives totally ignore the needs of overseas companies, which have many alternative choices in the region.

Indonesian refinery projects have a revolving door that regularly sees the arrival and departure of potential suitors from Russia, Japan, and the Middle East. So how to improve the oil industry in Indonesia?

Indonesia may benefit more by taking a leaf out of Malaysia's book. The latter has its own challenges, including sensitive fuel subsidies, but Petronas is far more profitable than Pertamina and is not forced to book fuel subsidy losses, because the government absorbs them. The company enjoys more freedom from government intervention and is more dynamic.

Petronas recorded a 22% jump in its 2018 net profit to 55.3 billion ringgit ($13.6 billion) and has planned a capital expenditure of over 30 billion ringgit for 2019. Pertamina, which is yet to release its 2018 results, hopes to book a very modest net profit of around 5 trillion rupiah ($351.6 million). The company slashed its 2019 capex by a quarter from its earlier plan, to $4.2-4.5 billion. Aside from losses from subsidized fuel sales, estimated at $2 billion in 2018, Pertamina is now saddled with aging oil fields that the government has been wresting back from foreign operators in a wave of resource nationalism. They will need investment just to maintain output.

(source: Nikkei Asian Review/Reuters)