Pertamina's Balongan refinery is seen in the background as workers clean up an oil spill at the Jetty Cargo Integrated Terminal at Indramayu, West Java, on March 17, 2022. (Antara Photo/Dedhez Anggara)

Too Cheap to Ignore: Indonesia Keens on Russian Oil

BY :JAKARTA GLOBE

MARCH 29, 2022

Jakarta. The state energy company Pertamina has been open to the possibility to buy crude oil from Russia amid a series of sanctions by Western countries against the country, the company's president director Nicke Widyawati told the lawmakers on Monday. 

"At the current price amid geopolitical situation, we see an opportunity to buy from Russia at a good price," Nicke said in a hearing with the House of Representatives Commission VI, which oversees trade, cooperatives, state-owned enterprises, investment, and national standardization. 

Nicke said Taufik Aditiyawarman, the president director of Kilang Pertamina Internasional, a Pertamina subsidiary that operates its refineries, has been in close contact with counterparties to explore the opportunities. 

She also said that Pertamina talked with the Ministry of Foreign Affairs and Bank Indonesia to discuss the Russian oil purchase. 

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"For this matter, there is no problem politically as long as the companies we deal with are not subject to [Western] sanctions," Nicke said. She also noted that Pertamina would conduct the purchase purely on a business-to-business basis.

Nicke said the company plans to process the Russian crude oil at the Balongan refinery. However, the simple oil purchases were still waiting for the refinery revamping to be completed in May.

Currently, the Balongan refinery can only accept low-sulfur crude oil such as that produced by Saudi Aramco. The price of this oil is relatively high, and the supply is limited, she said.

"With this revamping, one of which is completed in May 2022, Balongan is more flexible to use any type of crude," Nicke said.

Should the plan go through, Indonesia could follow India's and China's footsteps by snapping up cheap Russian oil to cope with soaring global energy prices.

Following the latter's invasion of Ukraine, the United States has imposed energy sanctions on Russia. The United Kingdom and the European Union considered their option for a similar boycott. Russia was left with a glut of oil it could not sell, except at a deep discount to countries willing to defy sanctions. 

On the other hand, Pertamina has been desperate to cut its crude oil cost to balance its book. The company has been shoulder the increase in the global crude oil price as it capped the prices of Pertalite and Pertamax —the most popular unsubsidized gasoline brand—in the past year. That was despite the fact that global oil price has risen 74 percent. 

The government was supposed to compensate Pertamina for the price cap—a policy to maintain the people's purchasing power during the pandemic. But, so far, the government had been late in paying Pertamina. On Monday, Finance Minister Sri Mulyani Indrawati said that Rp 85.4 trillion ($5.9 billion) compensation payment to Pertamina for 2020 and 2021 fuel bills was still in arrears. 

The government sets a certain level for the oil price to calculate the state budget, and any deviation from the assumption would affect its ability to spend. Indonesia expects the crude oil price to average at $63 per barrel in its calculation for this year's state budget. But, the Indonesian crude price (ICP) had exceeded $114 per barrel this month, data from the Ministry of Energy and Mineral Resources showed. 

 

 

 

 

 

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