“It would be better to use locally manufactured pipe for upstream (oil and gas projects). I’m here now, I’ll be monitoring.”
Pipa terminal BBM
Katadata

Acting Energy and Mineral Resources Minister Luhut Binsar Panjaitan has instructed Pertamina to increase its use of local content for upstream oil and gas activities. One way Pertamina could do this is by using pipe manufactured in Indonesia.

Luhut said Pertamina has not fulfilled all the terms pertaining to local content in its projects. “It would be better to use locally manufactured pipe for upstream (oil and gas projects). I’m here now, I’ll be monitoring,” he said in a written statement on Wednesday (25/8) night. (Read: Contractors Urge Government to Monitor Use of Local Content in Oil and Gas Industry)

Luhut added that upstream oil and gas businesses have been using imported pipe even though the quality of locally produced pipe is adequate. This locally manufactured pipe is also exported, so Indonesian companies should be using more Indonesian-made pipe.

He said Pertamina and other oil and gas companies have high standards but the quality of locally produced products would also improve in time.

Without naming names, Luhut said there are four pipe factories in Indonesia that have not been used to their maximum potential. “There are still many imports that must be reduced. I will monitor this,” he said. (Read: Tenders Could be Eliminated to Increase Use of Local Content in Oil and Gas Industry)

As well as reducing imports, using local products would have several benefits for the state, such as job opportunities and added value.

Also, the use of locally manufactured pipe would be more efficient for Pertamina. Luhut said Pertamina has a good financial report. The company only needs to settle US$440 million of its short-term debt, which amounted to almost US$5 billion in 2014. Net cash flow had continued to improve from US$3.1 billion to US$ 5.4 billion.

SKK Migas data indicate that the value of all goods and service procurement commitments was US$4.5 billion by June 2016. Meanwhile, the company’s local content portion was 46.1 percent (cost based). The company spent US$2.34 billion on services and US$2.16 billion on goods. (Read: Upstream Oil and Gas Use of Local Equipment Remains Low)

In comparison, in 2015 the company’s local content portion was 68 percent which was the highest in 10 years. It was only 54 percent in 2014, 57 percent in 2013 and 43 percent in 2006.