July 20, 2018 / 10:39 AM / 2 months ago

Indonesia's Pertamina seeks to cut asset risks as rupiah slides

* Pertamina assets total $51.2 bln in 2017

* Government approves plan to sell certain upstream assets

* Trying to shield Pertamina from rising oil prices, weak rupiah

By Cindy Silviana and Wilda Asmarini

JAKARTA, July 20 (Reuters) - Indonesia’s Pertamina is seeking government approval to divest assets to help shield the state energy company from rising crude oil prices and a rupiah that is at its lowest level in more than 2-1/2 years.

While higher oil prices have yielded Pertamina better returns from its oil and gas output, they have also increased the fuel bill for the net oil importer, especially amid the slumping rupiah.

Indonesia has promised not to raise some consumer fuel and electricity prices ahead of elections in 2019, but the populist policy has also dented Pertamina’s finances and cut its means of spending on much-needed infrastructure.

The government, which sets Pertamina’s fuel prices, wants to guard Pertamina’s finances from crude prices that are expected to climb 46 percent above the $48 per barrel assumed in this year’s budget, and a 7 percent weakening of the rupiah against the dollar this year.

Pertamina wants to divest to help maintain its long-term financial condition, and to avoid risking too much in any one particular asset class, Adiatma Sarjito, vice president of corporate communication, said in a statement late on Thursday.

“Like the saying ‘don’t put (all) your eggs in one basket,’ we (plan to) minimise risk based on business and legal studies.”

It was not immediately clear how much Pertamina targets to sell or over what time period, but the company would maintain control over the assets, Sarjito said.

Pertamina’s total assets climbed 8 percent to $51.2 billion in 2017 from a year earlier, while its profits slid 19 percent to $2.5 billion over the same period, its audited earnings report shows.

Deputy State Owned Enterprise Minister Fajar Harry Sampurno this week said his office had approved Pertamina’s proposal to “take steps” to shield itself from rising oil prices.

He referred to a letter from his ministry to Pertamina directors that in principle approved their plans to reduce the company’s interests in some upstream projects.

It also approved Pertamina plans to spin off its Cilacap and Balikpapan refinery businesses to its subsidiaries, and review company policies that “significantly” impact its finances.

Indonesia’s upstream oil and gas regulator (SKKMigas) said it supported the moves, and “hopes that through these strategic steps PT Pertamina can make more aggressive efforts in exploration for new oil and gas reserves, and be more efficient in carrying out its upstream work programs.”

Pertamina, however, has cut its 2018 capital spending budget by 28 percent to around $4 billion from $5.6 billion, Investor Daily newspaper reported on Thursday, quoting Pertamina Investment Planning and Risk Management Director Gigih Prakoso.

Indonesia at the same time plans to increase spending on energy subsidies by 69 trillion rupiah ($4.8 billion) to 163.5 trillion rupiah to keep some fuel prices and electricity tariffs unchanged throughout the year, Finance Minister Sri Mulyani Indrawati said on Thursday.

The rupiah hit 14,500 to the U.S. dollar on Friday, its lowest level since October 2015.

Brent crude cost more than 1 million rupiah a barrel in July, the highest since mid-2014 just before global oil prices slumped. In comparison, Brent priced in U.S. dollars is at its highest since 2016. (Reporting by Cindy Silviana, Maikel Jefriando and Wilda Asmarini; Additional reporting by Florence Tan in SINGAPORE; Writing by Fergus Jensen; Editing by Tom Hogue)

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