Oil Trader Shut Down in Latest Indonesia Energy Market Shake Up

Indonesia’s state oil company closed its trading arm and will take over operations in the latest government move to shake up the country’s energy market.

Pertamina shut down its Petral unit on Wednesday and the state producer will deal directly with its partners, President Director Dwi Soetjipto told reporters in Jakarta. The unit, which traded oil out of Singapore, will undergo an audit in a liquidation process expected to finish next year, said Rini Soemarno, the state-owned enterprises minister.

Petral, which bought crude and oil products on international markets to ship to Indonesia, has been a target for reform for months as the government seeks to reduce the influence of what it calls the nation’s energy “mafia.” President Joko Widodo has appointed officials with anti-corruption experience to the energy ministry and changed Pertamina’s management to improve transparency.

“This is an effort to break the supply chain, to break the bad reputation and Pertamina can start with a clean sheet,” said Energy and Mineral Resources Minister Sudirman Said. “This will give Pertamina a chance to improve governance.”

Pertamina will shut Petral’s offices in Singapore and Hong Kong and is in the process of selecting independent auditors, Soetjipto said. Closing operations and moving trading to Jakarta may be difficult because Petral’s Singapore location gave access to financing, international oil companies and logistics, Faisal Basri, the head of a government oil reform team, said in December.

Pertamina can save about $400 million from directly taking over Petral’s tenders and business, Soetjipto said.

Indonesia, a former member of the Organization of Petroleum Exporting Countries, has struggled to attract investment to turn around declining production in recent years, leading Widodo to prioritize industry changes.

“The oil and gas sector has been the brightest part of the Indonesian picture under the Widodo government,” said Keith Loveard, head of political risk at Concord Consulting, a Jakarta-based consultant whose clients include oil companies. “All of these developments will go some way to improving the atmosphere in what has been a very difficult area for companies to operate.”

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