Pertamina's Finance "Bloody" Until When?
BuletinDigital. Exactly December 10, 2018 PT Pertamina (Persero) has its 61st birthday. This red plate energy company actually received a bitter gift. Pertamina's financial performance has declined sharply. Pertamina only gained IDR 5 trillion in profits in the third quarter of 2018.
This achievement dropped dramatically compared to the same period in 2017 which had penetrated $ 1.99 billion, equivalent to Rp26.8 trillion (exchange rate of Rp13,500 per US dollar). Until the end of last year, Pertamina still pocketed a net profit of $ 2.55 billion, equivalent to Rp34.4 trillion. However, Pertamina's net profit has declined compared to 2016 which reached $ 3.16 billion.
Deputy Minister of Mining, Strategic Industry and the Ministry of BUMN Media, Fajar Harry Sampurno said that Pertamina's profit was eroded due to high world oil prices. On the other hand, the subsidies provided by the government have not changed so that it has an impact on the downstream business. Moreover, Pertamina also has to import LPG, crude oil and fuel.
Higher conditions for crude oil prices have occurred in the period 2011 to 2014. World oil prices penetrated the psychological level of $ 100 per barrel. In April 2011 for example, the price of Brent oil touched $ 123.07 per barrel. In March 2012 the price of Brent oil touched $ 124.93 per barrel.
At that time, Pertamina was still able to narrow large profits despite being faced with oil price fluctuations. In 2011 for example, Pertamina's profit reached $ 2.4 billion. The following year, Pertamina's net profit grew 15 percent to $ 2.76 billion. Pertamina's profit in 2013 reached $ 3.07 billion.
The increase in profit was supported by the increase in oil and gas production and the positive growth of the oil and gas business. Pertamina's oil and gas production in 2013 reached 465,220 barrels of oil equivalent per day (boepd). Where, oil production rose by 202 thousand barrels per day and gas production amounted to 1,528 mmscf per day.
The increase in production was followed by the addition of oil reserves which reached 237.31 million barrels. That year, Pertamina still had to suffer a loss of Rp.5.7 trillion in the 12 Kg non-subsidized LPG business.
In 2014, Pertamina's parachuting profits became only $ 1.53 billion when there was a downward trend in world oil prices. Pertamina's profit in 2015 dropped to just $ 1.44 billion. Even though Brent oil prices have slashed to a low of $ 37.72 per barrel in December 2015. From these two conditions, indicating that when oil prices rise or fall, Pertamina will still face financial problems, the trigger of which can be from financial burdens starting from inefficiencies to subsidies .
Chronic Problems Downstream Load
The increase in world oil prices, which is a blessing for other oil and gas companies, has become a disaster for Pertamina. This is because, the downstream costs borne are greater while upstream production continues to decline. The increase in world oil prices pushed up the cost of production in the downstream sector, such as the processing, marketing and commercial businesses, as well as Pertamina's LNG business.
As a result, the cost of goods sold has increased. Last year, the increase in cost of goods and other direct expenses in the downstream sector of Pertamina reached 26.8 percent from $ 27.94 billion to $ 35.44 billion. Overall, cost of goods sold and other direct expenses and Pertamina's operating expenses in 2017 rose 26.1 percent from $ 30.29 billion in 2016.
This then reduced the company's gross profit so that it decreased 12 percent to $ 7.51 billion from the previous $ 8.54 billion in 2016. The end result, net profit was eroded from $ 3.16 billion to only $ 2.55 billion (PDF). In fact, Pertamina's sales and operating revenues reached $ 42.96 billion in 2017. That figure rose 17.8 percent compared to 2016 which was $ 36.49 billion.
On the other hand, Pertamina also has to bear the difference in premium prices which are the duty of distribution by the government. Premium selling prices will be up to 2019 later, contributing to the company's operating expenses. The government policy regarding the one-price BBM also has a share. Pertamina itself responded diplomatically to this issue.
"Especially for One Price BBM, this is a task that must be carried out. Is this burdensome? If the infrastructure does not yet exist, it is certainly burdensome, operational costs are expensive," said PT Pertamina Managing Director Nicke Widyawati quoted from Antara.
Pertamina can indeed input additional subsidies for diesel fuel of IDR 2,000 per liter. In addition, the revision of Presidential Regulation (Perpres) Number 43 of 2018, has made Pertamina have to distribute premiums on Java, Madura and Bali even though it is not included in the assignment area. The distribution volume which was originally set at 7.5 million kiloliters also surged and was estimated to be 11.8 million kiloliters.
The addition of diesel subsidies of Rp1,500 per liter, according to Fitch Rating, does not have a significant impact on the company's financial performance. Because, the price of diesel and premium that Pertamina sells after subsidies is still below the market price of around 60-75 percent.
"Pertamina's financial burden will increase due to the price of premium and diesel fuel which has not increased. In fact, world oil prices have increased, "wrote Fitch Rating in its report.
Such conditions make Pertamina's prior interest, taxes, exchange rate depreciation and amortization (EBITDA) in 2018, expected to fall to around $ 6 billion. In fact, Pertamina's 2017 EBITDA reached $ 7 billion.
The continued decline in domestic oil production is also the cause of Pertamina's financial performance decline. Referring to SKK Migas data, in 2008 oil lifting was recorded at 926 thousand barrels per day (bpd). This achievement continues to fall until leaving 803.8 thousand bpd in 2017. In 2015, oil production eroded significantly to only 786 bpd. Not to mention, other oil and gas rations by other cooperation contractor companies (KKKS) will usually be allocated partially for exports. Thus, in fulfilling domestic oil consumption needs, Pertamina must import LPG, BBM and crude oil.
In fact, Fitch estimates that Pertamina's oil and gas production volume will increase to 928 thousand barrels per day (bpd) of oil equivalent per day (mboepd) in 2018. The amount is up 30 percent compared to 693 mboepd in 2017. Production volume is driven by production Mahakam, which was taken over by Pertamina in January 2018.
"Higher production volumes, together with strong crude oil prices, should be able to increase Pertamina's upstream profits and somewhat offset weaknesses in its downstream business," Fitch wrote in the same report.
Fitch Rating predicts a decline in bonds issued by the company. The international rating agency said, "The poor implementation of Indonesia's fuel and subsidy reforms during the period of high crude oil prices has slightly weakened Pertamina's business profile," Fitch wrote in his report.
Fahmy Radhi, Lecturer at the Department of Economics and Business at the University of Gadjah Mada (UGM) said that Pertamina's production must be increased to get out of poor performance. President Jokowi also once quipped this issue. At the same time, Pertamina's production cost efficiency must also be carried out. Radhi considered Pertamina's production costs to be higher than other oil and gas companies.
Thus, the operational costs and also the company's production are not higher and erode the company's profits. In addition, various receivables owned by Pertamina must be immediately paid, including to SOEs. "If necessary, penalties are imposed on various companies that are late in paying oil and gas debt to Pertamina," Fahmy explained.
Government policy to avoid political consequences by imposing oil and LPG subsidies on Pertamina's corporations will be key. In addition to various internal problems of Pertamina that must be dealt with.
The question is, until when Pertamina's finances continue to decline when the two problems are not finished?
This achievement dropped dramatically compared to the same period in 2017 which had penetrated $ 1.99 billion, equivalent to Rp26.8 trillion (exchange rate of Rp13,500 per US dollar). Until the end of last year, Pertamina still pocketed a net profit of $ 2.55 billion, equivalent to Rp34.4 trillion. However, Pertamina's net profit has declined compared to 2016 which reached $ 3.16 billion.
Deputy Minister of Mining, Strategic Industry and the Ministry of BUMN Media, Fajar Harry Sampurno said that Pertamina's profit was eroded due to high world oil prices. On the other hand, the subsidies provided by the government have not changed so that it has an impact on the downstream business. Moreover, Pertamina also has to import LPG, crude oil and fuel.
Higher conditions for crude oil prices have occurred in the period 2011 to 2014. World oil prices penetrated the psychological level of $ 100 per barrel. In April 2011 for example, the price of Brent oil touched $ 123.07 per barrel. In March 2012 the price of Brent oil touched $ 124.93 per barrel.
At that time, Pertamina was still able to narrow large profits despite being faced with oil price fluctuations. In 2011 for example, Pertamina's profit reached $ 2.4 billion. The following year, Pertamina's net profit grew 15 percent to $ 2.76 billion. Pertamina's profit in 2013 reached $ 3.07 billion.
The increase in profit was supported by the increase in oil and gas production and the positive growth of the oil and gas business. Pertamina's oil and gas production in 2013 reached 465,220 barrels of oil equivalent per day (boepd). Where, oil production rose by 202 thousand barrels per day and gas production amounted to 1,528 mmscf per day.
The increase in production was followed by the addition of oil reserves which reached 237.31 million barrels. That year, Pertamina still had to suffer a loss of Rp.5.7 trillion in the 12 Kg non-subsidized LPG business.
In 2014, Pertamina's parachuting profits became only $ 1.53 billion when there was a downward trend in world oil prices. Pertamina's profit in 2015 dropped to just $ 1.44 billion. Even though Brent oil prices have slashed to a low of $ 37.72 per barrel in December 2015. From these two conditions, indicating that when oil prices rise or fall, Pertamina will still face financial problems, the trigger of which can be from financial burdens starting from inefficiencies to subsidies .
Chronic Problems Downstream Load
The increase in world oil prices, which is a blessing for other oil and gas companies, has become a disaster for Pertamina. This is because, the downstream costs borne are greater while upstream production continues to decline. The increase in world oil prices pushed up the cost of production in the downstream sector, such as the processing, marketing and commercial businesses, as well as Pertamina's LNG business.
As a result, the cost of goods sold has increased. Last year, the increase in cost of goods and other direct expenses in the downstream sector of Pertamina reached 26.8 percent from $ 27.94 billion to $ 35.44 billion. Overall, cost of goods sold and other direct expenses and Pertamina's operating expenses in 2017 rose 26.1 percent from $ 30.29 billion in 2016.
This then reduced the company's gross profit so that it decreased 12 percent to $ 7.51 billion from the previous $ 8.54 billion in 2016. The end result, net profit was eroded from $ 3.16 billion to only $ 2.55 billion (PDF). In fact, Pertamina's sales and operating revenues reached $ 42.96 billion in 2017. That figure rose 17.8 percent compared to 2016 which was $ 36.49 billion.
On the other hand, Pertamina also has to bear the difference in premium prices which are the duty of distribution by the government. Premium selling prices will be up to 2019 later, contributing to the company's operating expenses. The government policy regarding the one-price BBM also has a share. Pertamina itself responded diplomatically to this issue.
"Especially for One Price BBM, this is a task that must be carried out. Is this burdensome? If the infrastructure does not yet exist, it is certainly burdensome, operational costs are expensive," said PT Pertamina Managing Director Nicke Widyawati quoted from Antara.
Pertamina can indeed input additional subsidies for diesel fuel of IDR 2,000 per liter. In addition, the revision of Presidential Regulation (Perpres) Number 43 of 2018, has made Pertamina have to distribute premiums on Java, Madura and Bali even though it is not included in the assignment area. The distribution volume which was originally set at 7.5 million kiloliters also surged and was estimated to be 11.8 million kiloliters.
The addition of diesel subsidies of Rp1,500 per liter, according to Fitch Rating, does not have a significant impact on the company's financial performance. Because, the price of diesel and premium that Pertamina sells after subsidies is still below the market price of around 60-75 percent.
"Pertamina's financial burden will increase due to the price of premium and diesel fuel which has not increased. In fact, world oil prices have increased, "wrote Fitch Rating in its report.
Such conditions make Pertamina's prior interest, taxes, exchange rate depreciation and amortization (EBITDA) in 2018, expected to fall to around $ 6 billion. In fact, Pertamina's 2017 EBITDA reached $ 7 billion.
The continued decline in domestic oil production is also the cause of Pertamina's financial performance decline. Referring to SKK Migas data, in 2008 oil lifting was recorded at 926 thousand barrels per day (bpd). This achievement continues to fall until leaving 803.8 thousand bpd in 2017. In 2015, oil production eroded significantly to only 786 bpd. Not to mention, other oil and gas rations by other cooperation contractor companies (KKKS) will usually be allocated partially for exports. Thus, in fulfilling domestic oil consumption needs, Pertamina must import LPG, BBM and crude oil.
In fact, Fitch estimates that Pertamina's oil and gas production volume will increase to 928 thousand barrels per day (bpd) of oil equivalent per day (mboepd) in 2018. The amount is up 30 percent compared to 693 mboepd in 2017. Production volume is driven by production Mahakam, which was taken over by Pertamina in January 2018.
"Higher production volumes, together with strong crude oil prices, should be able to increase Pertamina's upstream profits and somewhat offset weaknesses in its downstream business," Fitch wrote in the same report.
Fitch Rating predicts a decline in bonds issued by the company. The international rating agency said, "The poor implementation of Indonesia's fuel and subsidy reforms during the period of high crude oil prices has slightly weakened Pertamina's business profile," Fitch wrote in his report.
Fahmy Radhi, Lecturer at the Department of Economics and Business at the University of Gadjah Mada (UGM) said that Pertamina's production must be increased to get out of poor performance. President Jokowi also once quipped this issue. At the same time, Pertamina's production cost efficiency must also be carried out. Radhi considered Pertamina's production costs to be higher than other oil and gas companies.
Thus, the operational costs and also the company's production are not higher and erode the company's profits. In addition, various receivables owned by Pertamina must be immediately paid, including to SOEs. "If necessary, penalties are imposed on various companies that are late in paying oil and gas debt to Pertamina," Fahmy explained.
Government policy to avoid political consequences by imposing oil and LPG subsidies on Pertamina's corporations will be key. In addition to various internal problems of Pertamina that must be dealt with.
The question is, until when Pertamina's finances continue to decline when the two problems are not finished?
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