Indonesian banks' reluctance to issue letters of credit (L/Cs) to Indonesia's state-owned oil firm Pertamina is obstructing imports of petroleum products from Saudi Arabia.

The problem has prompted Indonesia's president to arrange a visit to the Middle Eastern oil producing kingdom later this month to seek a revised payment schedule for crude oil imports from the Saudi state-owned oil company, according to Indonesian officials.

Qarterly payments

President Susilo Bambang Yudhoyono wants to pay Saudi Aramco on a quarterly basis instead of monthly for the 120,000 barrels of crude oil it imports daily, according to Pertamina's chairman Widya Purnama.

Indonesia's budget is currently under strain since the government heavily subsidises the price to consumers of refined petroleum products. Under the prevailing very high oil prices, the authorities are considering cutting the subsidies by up to 60 per cent to ease budgetary pressures according to a finance ministry official.

L/C woes

Added to these problems, the state-owned oil company is experiencing difficulties securing the L/Cs needed to import petroleum products.

Domestic and foreign banks are currently reluctant to grant the firm L/Cs due to import financing repayment problems. This affected Pertamina's imports of petroleum products from Saudi Aramco earlier this year, according to Indonesian officials.

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