Pertamina's Worket at Offshore Project - Photo by PIEP

JAKARTA (TheInsiderStories)—Indonesia’s state-owned oil and gas company PT Pertamina (Persero) lowered its projected capital spending in 2018 by 20 per cent due to worsening market condition.

Pertamina‘s Director for Investment Planning and Risk Management Pertamina Gigih Prakoso said on Tuesday (17/07) that the company’s capital spending plan is lowered to US$4.5 billion from initial US$5.6 billion. He stated the investment cut is not because the company suffered financial difficulties, but to anticipate the macroeconomic condition especially the oil price spike and the rupiah depreciation against US dollar.

“Not because we have no money, rather because of macroeconomic condition, oil price [spike], and exchange rate,” he added, as quoted by Kontan.

In addition, the cut in investment plan is also due to projects delay. He ensures the company will not cut the upstream investment to maintain oil and gas production, especially in the terminated blocks given to Pertamina. The firm allocates US$3 billion for the upstream investment, among others, is to develop the Jambaran Tiung Biru field.

In addition, Pertamina will not cut the refinery investment as some large-scale project start next year. One of them is the first phase of the Refinery Development Master Plan (RDMP) in Balikpapan that currently starts the engineering, procurement, and construction (EPC).

The company will cut investment in the downstream business due to some projects cancellation such as the construction of fuel tanks in Eastern Indonesia.

The investment cut seems related to a rumours Pertamina is experiencing difficulties amid the higher financial burdens from sales of premium gasoline due to oil price spike and rupiah depreciation against US dollar. Finance Minister Sri Mulyani earlier warned State-Owned Enterprises Ministery on the financial condition of Pertamina and power producer PT Perusahaan Listrik Negara financial amid the strengthened U.S dollar.

Based on the 2017’s financial report, Pertamina has around US$10 billion in liabilities with the amount of cash reserves stood at only around $5 billion. Most of the company’s debt will mature in 2021, which raises concern about issues pertaining to financial liquidity.

On the other hand, fuel subsidy becomes a separate burden for Pertamina. If the selling price of premium and diesel remain until the end of 2018, its estimated that the cost that will be borne by Pertamina would reach Rp38.5 trillion (US$2.69 billion).

Yesterday, a letter signed by SOEs Minister Rini Soemarno on June 29, 2018, was circulated, giving an approval on Pertamina’s request on June 6 to sell part of its assets to private entities in order to help its financials.

Vice President Corporate Communication Pertamina Adiatma Sardjito in a press release on Thursday (19/07) confirmed Pertamina’s plan to release its assets is part of the business plan to improve the performance of the company’s portfolio in the future and reduce the risk in certain assets.

He added the letter proposed to the SOEs Minister is a principal permit as the company still needs approval from the government as shareholders to sell assets, according to the Pertamina’s article of associations. “This is a long process. If it needs to be done, it must get approval from the shareholders that is government, ” he said.

Sardjito said those corporate actions provide an opportunity for Pertamina to invite strategic partners and gains advantages in technology and business.

Meanwhile, the Upstream Oil and Gas Regulatory Special Task Force supported the SOEs Minister approval for Pertamina to take strategic actions including share down assets in upstream oil and gas.

The regulator is of the opinion that SOEs Minister must have done thorough consideration in giving the approval.

“We hope through this strategic steps Pertamina can take more aggressive efforts in exploring new upstream oil and gas reserves, and more efficient in implementing the upstream work program,” said Communication Head of the Upstream Oil and Gas Regulatory Special Task Force Wisnu Prabawa Taher in a press release on Thursday (19/07).