Caltex ordered to end contract for unfair practices

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)