Caltex ordered to end contract for unfair practices

JAKARTA (JP): The antimonopoly commission ordered PT Caltex Pacific Indonesia (CPI) on Friday to terminate its steel pipe procurement contract valued at more than US$15.7 million a year.

The commission issued its ruling after declaring Caltex in violation of the new antimonopoly and unfair business practices law.

Soy M. Pardede, a member of the Business Competition Oversight Commission, or KPPU, said the oil giant's tender procedure in procuring the pipes discriminated against small suppliers.

"Caltex must terminate all pipeline procurement contracts within 30 days after receiving a notification letter from the commission," he said at a media conference.

With the commission's verdict, Caltex, which is the country's largest oil producer, became the first victim of the antimonopoly and unfair business practices law, which was introduced in late 1999.

Soy said the commission would not financially sanction Caltex, which operates four major oil blocks in Riau.

According to Soy, who is also a senior executive of the Indonesian Chamber of Commerce and Industry, Caltex can appeal the ruling to the Supreme Court within 14 days.

"If within 14 days Caltex has not submitted an appeal, and if within 30 days it has not halted its procurement contract, then the commission will take the case to the police," Soy said.

In May last year, Caltex introduced a new tender procedure for the procurement of low and high-grade steel pipes. Under the new procedure, bidders were required to supply both grades of pipes in one package.

Smaller companies, which generally can only provide low-grade pipes, were allowed to join the tender only if they could guarantee they would also be able to provide high-grade pipes.

"The smaller companies were told to find a bigger company to guarantee them high-grade pipes, but the bigger companies are ultimately their competitors, which doesn't make sense," Soy said, reading from the commission's verdict.

Four companies took part in the Caltex procurement tender -- publicly listed PT Cipta Tubindo and PT Seamless Pipe Indonesia Jaya, PT Purna Bina Nusa and PT Patra Indo Nusa Pertiwi.

Cipta and Seamless should have been the only eligible bidders because the other two could only provide low-grade pipes. But Purna and Patra, according to Soy, managed to take part in the tender because Cipta guaranteed it would provide them high-grade pipes.

With this strategy the three bidders were able to arrange their bids to the advantage of Cipta, which finally won the contract.

"There was collusion between Cipta Tubindo, Purna Bina Nusa and Patra Indo Nusa to prearrange the winner of the tender, which is unfair business practice," Soy said, adding that Caltex should have known that this type of collusion would result from its tender process.

Caltex corporate communications manager Harry Bustaman said the company would study the commission's verdict before deciding whether to terminate the contract.

"We need to study the verdict that has been read. It needs to be legally scrutinized because the contract itself is legally binding," he said, adding that the 30-day deadline was adequate time for the company to decide its next move.

Harry said the oil giant had always supported the commission's investigation and would remain consistent in abiding by Indonesian laws.

The commission was formed by President Abdurrahman Wahid in June last year in compliance with a 1999 antimonopoly and unfair business practices law.

The commission is assigned to monitor the implementation of the provisions of the new law, which was passed by the House of Representatives in February l999 and signed into law by then president B.J. Habibie a month later.

Soy said that next on the commission's agenda was the verdict in the case brought against retail chain Indomart for alleged unfair business practices. He said the decision would be announced shortly. (tnt)