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Petral Starts Open Tender for Fuel Purchase

24 February 2012

SINGAPURA – Purchasing of crude oil and fuel products is commonly conducted through open tender. The open tender by PT Pertamina Energy Trading Ltd is now being bid by 55 registered companies.

President Director of PT Pertamina Energy Trading Ltd Nawazir said that the procurement of crude oil and fuel products has been conducted through open tender, which is currently participated by 55 registered companies.

The companies currently participating in the tenders are companies that have fulfilled Petral’s List of Selected Business Partners, which is a list of eligible partners to prevent supply failure that can cause  fuel crisis in Indonesia.

“Petral are purchasing crude oil from Nigeria, Asia, Australia and former Russian countries. All the procurements are done through open tender, which are bid by 55 companies,” he said.

Petral opens wide opportunity for any interested company to participate in tenders, as long as the company meets minimum requirements set. The requirements are set to filter out irresponsible parties from failing to supply, which can cause fuel crisis in Indonesia.

He added that only crude oil that are not freely traded or limitedly traded can be procured directly from national producing companies or the parties assigned by producers to market the crude oil. The example of direct assignment is the procurement of Arab Light from Aramco, which is not traded freely, and Azeri crude from PTT Thailand, which has largest Azeri crude oil reserve outside Azerbaijan.

“The price for purchasing Azeri directly from PTT Thailand is evidently lower than getting Azeri through open tender,” he said.

Besides the two companies, direct contracting is formed with Kuwait Petroleum company and Petronas (Malaysia). Specifically with PTT Thailand and Petronas Malaysia, Pertamina is forming the cooperation with the national companies as part of ASCOPE (ASEAN Council on Petroleum) cooperative framework, which is a cooperation among national oil companies in ASEAN.

In procuring crude oil and BBM fuel, good market knowledge and trading skill are needed. The procuring strategy must be determined to prevent overprice and mark-up. Direct assignment must be formed only with National Oil Companies (such as Aramco, KPC, Petronas and PTT). This is to prevent brokerage and price mark-up practices. National Oil Companies are known to forbid brokerage and commission practice, and always have internal monitoring to prevent corruption acts.

Meanwhile, Premium gasoline procurement is always made through open tender, which is bid by 28 trading companies and major oil companies (MOC). Petral procures more than 8 million barrel of Premium gasoline every month. Suppliers winning regularly the tenders for Premium petroleum are Arcadia, Total, Glencore, Vitol, Concord, Verita, Gunvor, PPT, Kernel, Bp, Unipec, Petrocina, Petronas, Shell, Trafigura, SK, and Conoco. Premium petroleum procurement is done by tendering because the producers are mainly traders in Singapore, which run the blending process in Singapore.

For diesel fuel procurement, it is made through spot open tender participated by 30 registered companies. For long term procurement, four National Oil Companies – Kuwait Petroleum Company, Petronas Malaysia, PTT Thailand and S-Oil owned by Saudi Aramco – have been chosen.

The four companies have their own oil mills that produce diesel fuel. The direct contracting with the four National Oil Companies prevent traders from Singapore from doing stock piling and price speculation that can hurt Pertamina and also prevent smuggling of subsidized diesel fuel to Singapore.

“The price gained from long term procurement is cheaper than procurement on the spot through tenders, which are mostly bid by traders,” Nawazir said.

Petral’s Shareholders and Performance

Petral is a limited company established based on Companies Ordinance Hong Kong and headquarters in Hong Kong. Currently 99.83% of Petral’s shares is owned by PT Pertamina (Persero) and the remaining owned by Petral President Director as stipulated by Companies Ordinance Hong Kong.

In 2011, Petral logged the trading of 266.42 million barrels, consisting of 65.74 million barrels of crude oil and 200.86 million barrels of products. From the trading activities, Petral booked an income of US$31.4 billion and profit margin of US$47.5 million. Petral successfully booked price efficiency, which gained against market price, of Rp 2.6 trillion for procurement of BBM fuel products (Mogas 88 RON & HSD 0.35% S) and Rp 0.4 trillion for crude oil import.

Petral is established following the analysis done by McKinsey consultation with the following considerations:

  • The establishment of Petral aims to gain real picture of market price as the Subsidiary acts as trading arm to conduct Pertamina’s market intelligence among the Singapore regional market.
  • The presence in the center of financial market and financial institutions is needed to gain financing.
  • It has more operational flexibility to act more swiftly compared to Pertamina as a corporation.

Requirements to be Petral’s Partners

As stipulated by the Commissioner’s Decision No. 072/K/DK/2009 dated 26 February 2009 and RRD No. RRD-42/C00000/2009/S0 dated 22 April 2009, Petral was appointed as single trading arm for import activities taking place in Singapore. The eligible suppliers to supply crude oil (MM) and petroleum products (BBM) for Pertamina are business entities that have fulfilled Petral’s List of Selected Business Partners. The criteria are required to select reliable partners to prevent failure in supply that can cause fuel crisis in Indonesia.

The criteria for tender participants:

  1. The company is listed on major global stock exchange and or company whose major shareholders are the state (state owned company) involving in production, processing, or trading of crude oil, refined products, LNG or petrochemical field.
  2. The company must have minimum total equity of US$50 million, as reflected in the latest audited Financial Report, which is audited by one of four major audit offices (EY, KPMG, PWC, and Deloitte).
  3. The company must have assets supporting their business pattern, such as mill, storage facilities,  blending facilities, shipping facilities or the potential partner must have at least 1-year term contract of the facilities. The size of the facilities is at least proportional to the size of existing trading facilities.

Best Practices regarding MM/BBM trading in global market by other oil companies are also performed by trading arm (mostly based in Singapore) as what Pertamina does. Example:

  • Relliance – Relliance Global Energy Services pte Ltd. (Singapore)
  • PTT – PTT Trading in Singapore
  • SK – SK Energy International (Singapore)· PetroChina – PetroChina International (Singapore) Pte. Ltd.
  • Total – Total Oil Trading SA (TOTSA) in Singapore
  • Shell – Shell International Eastern Trading Co (SIETCO) in Singapore
  • BP – BP Singapore Pte. Limited· Petronas – Petronas Trading Corporation (PETCO) in Kuala Lumpur
  • CNOOC – China Offshore Oil (Singapore) International Pte. Ltd
  • S-Oil – S-Oil Corporation Singapore Branch

Crude Oil Tender Procedure in Petral Singapore

  1. Petral officially receives demand for crude oil from Pertamina.
  2. Based on official demand from Pertamina, Petral sends out tender offer to registered suppliers, which are included in the Petral’s List of Selected Business Partners (DMUT) and have been approved by Petral’s risk management department.
  3. The tender offer – containing names of crude oil to be purchased, quantity, delivery date to Pertamina’s mills, purpose of Pertamina’s mills, and other requirements – is sent out through e-mail to the companies in the DMUT list.
  4. The suppliers then send in their bid before tender deadline through electronic mail to specific address determined by Petral management.
  5. It was then followed by opening of the bids, witnessed by tender team. The tender team is led by Petral Head of Trading with members from trading, finance, and risk management function.
  6. The best bid is then reported to Pertamina without identifying the name of the winning company which offers the crude oils. Pertamina then uses Linear Programming GRTMPTS software to calculate which crude oils are most beneficial to be purchased without knowing the seller.
  7. Pertamina then officially informs Petral the crude oils to be procured.
  8. Petral then renegotiate to get better price and finalize the purchase of the determined crude oils.

Tender Winners for the Last 3 Months

Through tenders conducted by Petral in the past four months, Petral has purchased the following crude oils:

  1. January 2012: Akpo purchased from Verita Oil, Azeri purchased from PTT Thailand, Nemba purchased from Verita Oil, Bonny Light purchased from Vitol, Seria purchased from Verita Oil, and Girassol purchased from Repsol.
  2. February 2012: Akpo purchased from Eni, Azeri purchased from PTT Thailand, Champion purchased from Shell Brunei, Espo purchased from Vitol, Qua Iboe purchased from BP, Vityaz purchased from Verita Oil, and Saharan purchased from Eni.
  3. Maret 2012: No spot tender because the stock of crude oil was still sufficient
  4. April 2012: Azeri purchased from PTT Thailand, Akpo purchased from Total, Sokol purchased from Bpm, and Vityaz purchased from Verita Oil.  From the data, it was evident that Azeri crude oil is controlled by PTT Thailand as the party appointed by Azeri producer in Azerbaijan to market Azeri for Asia Pacific. PTT Thailand always offers Crude Azeri at the lower price.

Since Petral started tendering in Singapore, there has been a shift in the winners of tenders. Now tenders can only be won by oil companies with reputation and strong network. No more opportunistic companies has won the tenders, which have been conducted with high transparency.

Crude Oil Procurement Proportion

Based on crude oil (MM) procurement data for 2011, in overall the portion of crude oil supplied to Pertamina’s mills is as follows:

  1. MM Domestic: 65 %
  2. Arabian Light Crude: 13 % (term Saudi Aramco)
  3. MM Impor via PES (Petral Energy Services Pte Ltd: 22% (via spot and term)

Procurement of crude oil import is conducted in two ways: spot and term, and usually performed through tender by PES, with exception for products that are not commonly traded or limitedly trade such as ALC and other crude oils. The ratio of total spot and total term is 30:70.

Purchasing Price Efficiency of Crude Oil and Oil Products

By conducting right procurement strategy, Petral successfully book the following cost savings in 2011:

  1. Average price of crude oil purchased by Petral is USD113.95 per barrel compared to market average price of USD119.45 per barrel.
  2. Average price of Premium petroleum purchased by Petral is  USD118.50 per barrel compared to market average price of USD123.70 per barrel.
  3. Average price of Diesel fuel purchased by Petral is USD 126.70 per barrel compared to market average price of USD132.90 per barrel.

The market price is based on PLATT Singapore publication, which is a reliable publication trusted by the players in oil market. In 2011, Pertamina procured 266.42 million barrels of oil, comprised crude oil and petroleum products.

Reasons to Choose Singapore as Base

Singapore is the trading center of crude oil and petroleum products for Asia region and the center for trading arms or suppliers of crude oil and petroleum products.

  • Singapore is one of the trading centers of crude oil and petroleum products in the world, other than Geneva, London, Houston and Dubai.
  • So far, no Indonesia-registered business entity can provide offer of crude oil and petroleum products to Pertamina/PES.
  • To avoid/reduce political pressure commonly happened in procuring crude oil and petroleum products.
  • Singapore is the publication spot commonly referred to by players in crude oil and petroleum products.

Good Corporate Governance

To evaluate the implementation of GCG in Pertamina, including Petral, currently there are five evaluation parameters set. The implementation of rights and responsibilities of shareholders is given 9 percent portion, setting of GCG policy is given 8 percent, implementation of GCG is given 66 percent portion, information transparency 7 percent and commitment 10 percent.

The efforts in implementing GCG have shown results. Pertamina’s GCG index rating has increased to 86.79 percent in 2010 and achieved AA category in company health SEHAT with score of 90.85. Petral has been commissioning Ernst and Young as auditor to determine the soundness of the company’s financial report.

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