Wed, 09 Mar 2005

From: Jawawa

Corruption at Pertamina looms over fuel price hikes

Vincent Lingga, The Jakarta Post, Jakarta

So what! That may be the skeptical reaction of most people to the ruling by the Business Competition Supervisory Commission that state oil and gas company Pertamina and three of its business partners conspired to rig the tender for the sale of two very large crude carriers in mid-2004.

After all, many previous rulings in high-profile cases have been overturned in appellate courts on technicalities or procedural faults, despite the painstaking work of the antitrust body to build its rulings based on well-documented evidence.

The commission's ruling on the tanker sale also seems to have been based on well-documented evidence, capping almost eight months of poring over 291 documents and questioning 26 witnesses.

The conclusion, announced last week, simply validated the allegations by the Pertamina union and several anticorruption activists, who last year campaigned to block the tanker sale but succeeded only in creating a nationwide controversy and headline stories for a few days.

The evidence pieced together by the commission showed that Pertamina and three other companies -- Frontline Ltd., Goldman Sachs and PT Equinox shipping company -- conspired to rig the tender in the favor of Frontline, causing between US$20 million and $56 million in state losses.

The commission concluded that they violated Article 19 of the antimonopoly law prohibiting businesspeople from discriminating against other business players, and Article 22 banning businesspeople from conspiring to determine the winner of a tender.

Some of the evidence pieced together by the commission:

* Pertamina selected Goldman Sachs as the financial adviser and arranger of the tender without a beauty contest (competitive bid), in violation of government regulations.

* Frontline, which eventually won the tender, was allowed to submit a bid, through PT Equinox, as its Indonesian agent, after the deadline for bids had passed.

* The opening of Frontline's bid was not witnessed by a notary public, as Goldman Sachs required for the two earlier bidders.

As early as last September, after 30 days of preliminary investigation into the controversial tanker sale, the commission found strong indications of unfair competition in determining the winning bidder, and duly notified Pertamina and related parties of the findings.

However, Pertamina went ahead with the tanker sale, saying it faced severe cash flow problems, the tender was fair and transparent and Frontline was declared the winner because the other two bidders could not put up a 20 percent down payment and US$5 million surety bond for each of the two tankers.

The commission's findings only strengthened the public's suspicion about deep-rooted gross inefficiency and corruption at the state oil monopoly. And these findings certainly insulted the public's sense of justice, particularly as people now strain under the burden of the recent fuel price increases.

Rent-seekers seem to have re-entered Pertamina, especially after former Caltex Pacific Indonesia CEO Baihaki Hakim, who was appointed in February 2000 by then president Abdurrahman Wahid to clean up the state company, was replaced in September 2003.

It was Hakim who decided to order the two very large tankers in late 2002 from South Korea, in a bid to eliminate the mafia- style business practices that had cost the company hundreds of millions of dollars in tanker charges, as confirmed by PriceWaterhouseCoopers in a special audit in 1999.

Remember the controversial sale by tender of PT Indomobil, Indonesia's second largest automobile group, by the Indonesian Bank Restructuring Agency (IBRA) in late 2001?

The antitrust body, after three months of examining 170 documents and questioning dozens of witnesses, ruled in April 2002 that the three final bidders -- PT Bhakti Asset Management, PT Alpha Securitas Indonesia and PT Cipta Sarana Duta Perkasa -- had conspired to ensure Cipta Sarana won the bid.

The ruling, also built on well-documented evidence, stated that Cipta Sarana, an unknown company set up only in December 1998, did not qualify for the tender.

Similar to the Pertamina case, the commission discovered many circumstances and occurrences that raised disturbing questions about the integrity of the tender process.

However, all of the commission's rulings in the Indomobil case were overturned by appellate courts.

The commission also lost the case against Garuda's ticket reservation system and against the Jakarta International Container Terminal's alleged monopoly at the Tanjung Priok Port in Jakarta.

Many legal experts have questioned the technical competence of judges in the appellate courts (district courts and the Supreme Court) in dealing with complex business transactions.

But the commission suspects corruption in the district courts is one of the main reasons it lost these cases. In July 2002, the commission, frustrated by its many defeats in the district courts, demanded an audit of the assets of those judges who overturned its rulings. But again nothing happened.

Will the same thing happen to the commission's ruling on the tender for the tankers?

The answer could be yes, given the snail's pace of reform in the judicial system.

The situation is, however, not entirely hopeless. The March 1 fuel price increases have angered so many politicians, student leaders and activists that the government may have to act strongly on the commission's findings, otherwise public opposition to the new fuel policy will become much stronger and the government's credibility in fighting corruption will be eroded.

The writer is a senior editor at The Jakarta Post.