Karen Agustiawan, President Director, Pertamina: Interview

Interview: Karen Agustiawan

What is the rationale behind the decision to focus investments towards the upstream business?

KAREN AGUSTIAWAN: We currently allocate 75% of our investments towards our upstream business. That includes maintaining and even increasing our current production to offset a decline rate of 15%, while at the same time ensuring the integrity of upstream assets. However, it is not our sole intention to increase our oil and gas production levels, but to also strengthen our reserves. Within our upstream business, one of our priority projects is the Natuna block. Despite its high carbon content, Natuna has 45trn cu feet of extractable gas reserves. The gas would be used to meet domestic demand, as the country faces a deficit of 2.5bn standard cubic feet of gas per day.

On the downstream side we are undertaking work to upgrade and revamp projects in our refineries as well as develop products to meet market demand. We also will be aggressively increasing our product lines overseas. While we would like to expand both within the upstream and downstream, I feel it is in the company’s best interest to focus on the former. Downstream and upstream represent 70% and 30% of our revenue, respectively, but the net profit is actually reversed. Ultimately, I would like to have a 50/50 revenue split. That will provide the company with more stability in the event of business cycle fluctuations on either the downstream or upstream side.

To what extent will renewable energy resources become a major focus over the medium term?

AGUSTIAWAN: We intend to direct more effort towards exploring alternative and renewable energies. For the moment, we have been developing our Coalbed Methane (CBM) and geothermal businesses as alternatives to conventional sources like oil and gas. Confronted with a global energy crisis, alternative and renewable energy is something we have to start working with. Unfortunately, CBM development is far more complicated than oil, primarily due to the de-watering process which generates serious environmental threats.

This unfavourable reality needs to be seriously addressed by authorities in order to accelerate CBM production.

Issues to be resolved include legal, business and social aspects. We need more government attention to ensure CBM development will proceed in the right direction.

Concerning geothermal energy, Indonesia has a huge potential for this resource. In the second phase of the projected additional 10,000 MW of electricity for Indonesia, geothermal will contribute roughly 1300 MW. Currently, we only have 272 MW. This, therefore, represents a huge opportunity for developing this energy source.

From an environmental perspective, geothermal is the best alternative. If we can reduce or even completely eliminate oil consumption the state could significantly reduce electricity subsidies. For those reasons we should all be supporting geothermal development.

How are fuel subsidy policies being re-examined?

AGUSTIAWAN: As a result of fuel subsidies, people do not realise fuel prices are actually getting higher every day. The general population simply does not have a clear understanding of fuel’s real price. Therefore, fuel is undervalued, and not being utilised efficiently. On the other hand, we recognise people’s purchasing power is not high and they cannot afford to pay the real price of fuel. Thus, we can only expect the government to establish a price which will neither overburden citizens, nor place heavy constraints on the state budget.

We have to continue to educate our people about the value of fuel and energy. In the future, maintaining the current level of government subsidies will become increasingly difficult. Right now we are trying to phase out subsidies for public transportation and to have households move from kerosene to liquefied petroleum gas. We plan that by 2014 subsidies will be almost completely phased out and only given directly to those in critical need. This plan is in line with G20 commitments to gradually phase out inefficient fossil fuel subsidies. Therefore, faster and broader action is needed.