Is Pertamina monopolizing the 12-kg LPG cylinder business?

Is Pertamina monopolizing the 12-kg LPG cylinder business?

Photo document of LPG 12 kg in Jakarta market. (ANTARA/Ismar Patrizki)

So, it is not justified to comment that the price hike is related to Pertamina`s monopoly."
Jakarta (ANTARA News) - The state-owned oil and gas company PT Pertamina was not monopolizing the liquefied petroleum gas (LPG) business, stated the former secretary of state enterprises ministry Said Didu, on Monday, while contradicting claims from other quarters.

Pertamina has recently created a furor, after its decision to increase the price of its 12-kg LPG gas cylinder by 68 percent, effective from January 1, 2014.

Deputy President of Pertaminas Communications Affairs Ali Mundakir remarked that his company had hiked the price in an effort to reduce Pertaminas losses in the 12-kg gas cylinder business, which amounted to about Rp6 trillion in 2013.

Said Didu pointed out that PT Pertamina was not monopolizing the 12-kg LPG gas cylinder market as accused by some quarters.

"So far, other business institutions are not prohibited from joining the 12-kg LPG gas cylinder business. They have not yet forayed as it is a loss-making business," he spoke in his defense regarding the issue.

He added that Pertamina is the only company involved in LPG production in Indonesia, as no other business institution wants to enter the business. The selling price of the LPG gas cylinder is very low or, in other words, it was a loss-making business.

"So, it is not justified to comment that the price hike is related to Pertaminas monopoly. We should, instead, be grateful that Pertamina is willing to sell the product at a loss," he stated.

Said refuted comments from politicians who, he said, are only seeking political gains by disputing the issue.

"They know that the 12-kg LPG gas cylinder is not subsidized and only the 3-kg LPG gas cylinder is subsidized. Therefore, they (Pertamina) need not report to the government and the DPR (when they want to raise the price). They are obliged to do it if they want to increase the price of the 3-kg LPG gas cylinder," he added.

He categorically stated that if a ruler can force a state-owned company (BUMN) to incur losses due to political pressures, then the company can collapse.

"The BUMN is owned by the state, rather than by the government or the one in power," he added.

Said Didu pointed out that as 60 to 70 percent of raw materials for LPG production were imported, thus a change in the rupiah exchange rate can have a major impact on the price of LPG.

So far, LPG imports are necessary, as the current domestic production is far below the domestic consumption. Moreover, contracts have been signed with foreign parties, he said.

He stated that the price of the 12-kg LPG gas cylinder has been curbed for the past five years by the government.

He pointed out that Pertamina has been suffering significant losses in the LPG business since 2008, when the rupiah exchange rate dropped by 25 percent.

"At that time, Pertamina had sought a price hike, but the government rejected it on the grounds that the timing of the hike was close to the upcoming 2009 general elections. Since proposals for a price rise have always been rejected, so losses have piled on over the years," he claimed.

He remarked that the cost of raw material for the production of the LPG gas cylinder has increased 250 to 300 percent in the last five years.

He noted that Pertamina has suffered a loss, while the 12-kg LPG gas cylinder, has so far, been enjoyed by the "haves".

"Foreign companies, cafes, hotels, and luxury restaurants have, so far, enjoyed a subsidy from Pertamina. This is not far for the people. Politicians must also consider this," he added.

Following widespread criticism from the government and people, Pertamina has finally decided to reduce the price hike for the 12-kg non-subsidized LPG cylinder from Rp3.9 thousand to Rp one thousand per kilogram only.

President Susilo Bambang Yudhoyono had ordered for a revaluation of the decision. He regretted that the policy, which has such a wide-ranging impact on the people, lacked proper planning and coordination.

"This does not necessarily happen," he noted.

"After seeking consultation with the officials of the Supreme Audit Agency (BPK), the price for the 12-kg cylinder will be lowered to Rp82 thousand from the previous price of Rp117 thousand. The price change will become effective from January 7," State-Owned Enterprises Minister Dahlan Iskan stated here on Monday.

Minister Dahlan remarked that the increased gas price will not significantly reduce Pertaminas losses.

"Prior to the gas price hike, Pertamina suffered a loss of Rp7.7 trillion per year. However, with the current decision to increase the gas price by Rp one thousand per kilogram, the loss will be reduced to Rp6.5 trillion per year," Dahlan added.

The House of Representatives (DPR) Chairman Marzuki Ali remarked that PT Pertamina should have consulted the related DPRs commission prior to increasing the price of the 12-kg LPG gas cylinder.

"Pertamina, as a state-owned company, has the monopoly rights to supply LPG to the people. Thus, the head of Pertamina has to report to the government and the law makers in the DPR if they want to raise the price of LPG," Marzuki stated here on Monday.

According to Marzuki, Pertamina owns the monopoly rights to supply LPG through a constitutional command. Therefore, the price has to be controlled by the government and the rate that best suits the peoples buying capacity should be followed.

"A monopoly right cannot be exercised with a corporate action that depends on profit and loss," he noted.

"If Pertamina follows the market mechanism with its profit and loss orientation, then the monopoly rights should not be given to them," Marzuki added.

Apparently, Pertamina had announced the price hike without informing the DPR and the government. Hence, Marzuki stated that the LPG price hike can be cancelled by the government.

"The monopoly right owned by Pertamina is a command, and the government, as the taskmaster, is authorized to cancel it," Marzuki explained.