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ENGINE: Pertamina revamps Indonesia bunker strategy to attract demand with VLSFO pricing

15 May 2023

Indonesia’s-state-owned energy firm Pertamina plans to reduce its VLSFO offer price for ocean-going vessels by about 30%.

Pertamina has devised a synergy programme between its two subsidiaries Pertamina Patra Niaga (commercial and trading arm) and Kilang Pertamina International (refining arm). Bunker sales to ocean-going vessels will be marketed by both firms, Pertamina Patra Niaga’s company representative tells ENGINE.

With the new programme, the company’s VLSFO sales to ocean-going vessels will be exempted from value-added tax (VAT). This means the 11% VAT, which was previously applicable, will be waived off.

In the initial stage, this exemption will only be applicable to VLSFO sales in the Indonesian ports of Jakarta, Surabaya and Balikpapan. The company will subsequently extend this strategy to cover LSMGO sales, and also expand it to cover other Indonesian ports down the line, the company representative said.

The new strategy is somewhat similar to the Chinese bunker model. In February 2020, the Chinese government waived its 13% VAT on fuel oil sold to Chinese and foreign vessels involved in international trade, in multiple coastal ports. This included the bunkering hub of Zhoushan. The move was aimed at making Zhoushan’s bunker fuel prices, and particularly VLSFO, more competitive against ports like Singapore.

Besides waiving VAT, Pertamina has revised its bunker pricing mechanism by shifting from a “cost-based pricing” model to a more market-linked pricing system, the company’s representative says.

Its current cost-based pricing mechanism emphasises the cost of production at the refinery level and profit margins, while a market-linked pricing system would factor in more wider supply-demand fundamentals beyond the company’s production and operations.

Pertamina looks to benefit from its new pricing strategy by boosting bunker sales to ocean-going vessels, which has been lacking in the past due to significant price gaps between Indonesia and other regional bunker hubs such as Singapore, Pertamina said.

Jakarta’s VLSFO premium over Singapore’s currently stands at a whooping $280/mt.

By Nithin Chandran


Source: ENGINE
Photo credit: ENGINE / Pertamina
Published: 15 May, 2023

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