President Joko Widodo injects capital Rp2.1 trillion (US$141.89 million) to PT Pertamina to improves the capital structure of state-owned energy producer - Photo by the Company

JAKARTA (TheInsiderStories)–Today circulated letter from the State-owned (SOEs) ministry that allowed the largest energy producer PT Pertamina to sell part of its assets to meet the company’s financial needs.

Lately, there is a rumors Pertamina is experiencing financial difficulties amid the higher premium subsidy and the increasingly of U.S dollar. Prior, Finance Minister Sri Mulyani Indrawati has warned SOEs ministry on the financial condition of Pertamina and its fellow’s power producer PT Perusahaan Listrik Negara financial amid the strengthened U.S dollar.

Based on the 2017’s financial report, Pertamina has liability about US$10 billion but in the other hand the net cash only around $5 billion. Most of the debt will mature in 2021. If calculated since now to the maturity date, Pertamina is experiencing difficulties in fulfilling its obligations if not maintaining its 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 subsidy will be borne by Pertamina Rp38.5 trillion (US$2.69 billion).

Recently, Minister for Energy and Mineral Resources Ignasius Jonan stressed it that the government will not raise fuel prices until next year and does not restricted the Pertamina production. This policy also hurt Pertamina’s financial conditions. For more, Pertamina has confirmed to trimmed approximately 20 percent of the downstream investment from initial planned allocated $5.6 billion.

Based on the recent development, in the letter signed by SOEs Minister Rini Soemarno on June 29, 2018 give approval on Pertamina’s request letter on June 6 to sell part of its assets to private entities in order to help its financials.

The letter stated four corporate actions that will be conducted by Pertamina, including selling its assets to private entities. First, share down on upstream asset (including but not limited to participating interest, share ownership, and other forms), while maintaining Pertamina’s control in strategic assets and seeking credible partners and striving for other strategic values such as access to overseas upstream assets.

Second is spinning off Cilacap and Balikpapan refineries to subsidiaries, and potential farm-in subsidiaries in line with the Refinery Development Master Plan (RDMP) program.

Third is additional investment to expand distribution of non-subsidy fuel such as Pertashop. Fourth, Pertamina will review the company policies that can significantly impact to the financial performance without reducing the company’s goal.

In the letter, Soemarno writes that Pertamina’s board of directors is required to conduct a comprehensive review before committing any moves and approval from the commissioners and the general meeting of shareholders is mandatory.

Deputy of Mining, Strategic Industries and Media for SOEs Ministry Fajar Harry Sampurno said, the letter is an initial approval for the Board of Director of Pertamina to conduct adjustment steps in order to overcome the Indonesia Crude Price (ICP) price spike.

The realized ICP is far above price assumption of $48 per barrel in the 2018 state budget. In May 2018, ICP averaged $72.46 per barrel, while in June it was at $70.36 per barrel. The average of ICP in the first semester of this year reached $66.6 per barrel.

The oil price spike potentially hurt the Pertamina’s financial performance. The firm on March 2018 estimated a potential loss of Rp3.9 trillion due to oil price hikes.

The estimates could change as Pertamina increased the high-octane fuel Pertamax price on July 1, 2018. However, the company did not increase the low-octane fuel Premium price since April 2016. Maintaining Premium price potentially hurt the Pertamina’s financial performance as the company’s fuel business is dominated by this fuel.