Corruption at Pertamina looms over fuel price hikes
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.