Not an Ordinary Move, Pertamina Achieves Fantastic Savings of IDR 32 Trillion

Jakarta, June 21, 2022 - Responding to President Jokowi's directive not to rely solely on subsidies from the Government, Pertamina has made a series of efficiency and cost optimization efforts, the best way to turn challenges into achievements. This sentence can represent Pertamina’s operation efficiency or cost savings in the second year of the Covid-19 pandemic. Not a dime, but a coffer of USD 2.2 billion or equivalent to IDR 32 trillion. A fantastic achievement at a time when the national industry was only starting to squirm after being almost subdued by the spread of a deadly virus.

The trillions of efficiency were obtained from cost savings programs of IDR 20 trillion, Cost Avoidance of IDR 5 trillion, and additional revenue (Revenue Growth) of around IDR 7 trillion.

How will this state-owned company be able to carve out cost-saving gold ink in 2021? Certainly, it is  not an easy job. Various innovations, breakthroughs, and unconventional methods have been taken to deal with the business challenges amid the soaring world crude oil prices caused by supply chain disruptions and the ongoing pandemic. Challenges are getting tougher in 2022 with geopolitical dynamics triggered by the Ukraine-Russia conflict, which resulted in an increase in ICP above USD 100/barrel.

"With efficiency, we can survive amid the unpredictable global dynamics and present a net profit of IDR 29.3 trillion in 2021," said Heppy Wulansari, Acting Vice President of Corporate Communication of Pertamina (21/6/22).

In the upstream sector, which receives windfall profits from the high price of Indonesia Crude Price (ICP), Pertamina can optimize production and service costs through a series of breakthroughs. It ranges from budget tolerance profiles, optimization of well intervention, to savings in chemical consumption and fuel use. This move resulted in savings of IDR 6.2 trillion, or 10 percent higher than the target of IDR 5.6 trillion.

Heppy also stated that Pertamina optimized Medium Crude procurement costs through heavy & light crude blending activities, alpha renegotiation, advance procurement, distress cargo purchase, co-load delivery, extensive delivery date range, and optimization of LPG import portfolio (Multisource, Direct Sourcing, and Trading Swap) in the crude oil and product procurement process. Although complicated, the results are favorable as it reduces costs up to IDR 2.8 trillion.

Then, in the energy transportation and distribution sector, cost optimization reaped positive rewards of IDR 4.1 trillion with tactics such as changes in crude and product supply patterns, changes in routes and types of ships, bunker optimization, supply logistics patterns and distribution optimization, handling and storage, and renegotiation of shipping lane rates, among others.

The non-hydro procurement and maintenance expenditures are also prideful. The company could record cost savings of IDR 3.4 trillion by using the centralized procurement method, renegotiating long-term contracts, and reducing consumption of goods/services. Others also improved the maintenance program through increasing TKDN and re-prioritizing refinery equipment maintenance activities, preventive maintenance of tank cars, and prioritizing tank cleaning, as well as improving the Docking Panel program and reducing the docking duration.

The cost optimization movement is also massive for financial, general, and administrative expenses. This supporting sector is also creative, with savings of IDR 2.5 trillion, higher than the IDR 2.3 trillion set target. This achievement was achieved by optimizing tax and interest expenses and optimizing general and administrative costs, including the online media utilization for optimizing travel and worker training costs, limiting consultant services utilization, relocating office buildings with lower rental rates, and prioritizing promotional and ceremonial activities and sponsorship.

"By saving energy and refinery fuel for own use and optimizing the electricity utilization, the IDR 403 billion budget can be streamlined," said Heppy.

Apart from saving costs to achieve significant efficiency, Pertamina has also avoided costs of up to IDR 5.1 trillion, or 10% higher than the target set at IDR 4.6 trillion. To support savings efforts, Pertamina could generate additional revenue of IDR 7.1 trillion or 107% of the 2021 target of IDR 6.6 trillion.

The cost optimization program is continuous. The cost efficiency program realization in 2020 is IDR 12.6 trillion. Meanwhile, the cost optimization realization until April 2022 is IDR 2.9 trillion.**

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