Ibnu says Pertamina can't compete

By Johannes Simbolon

JAKARTA (JP): The founding president of state oil and gas company Pertamina, Ibnu Sutowo, said on Thursday the bill on oil and gas mining submitted to the House of Representatives last week should be rejected because it would diminish Pertamina's role in the industry.

Ibnu said the bill's stated objective of allowing Pertamina to concentrate on its core business of oil and gas exploration and production in competition with foreign companies was unattainable given the company's severe financial restraints.

"Turning Pertamina into a competitive oil and gas company is only a daydream," Ibnu told The Jakarta Post.

"Pertamina won't be able to compete with foreign companies because it has no money and does not control the market," he said, warning that exploration and production is a high-risk and capital intensive venture.

Ibnu, president of Pertamina for more than eight years until 1976, said the company lacked financial resources because most of its revenues were taken by the government to finance the state budget.

He is afraid that the law, if enacted, could diminish Pertamina's role in the oil and gas industry unless the company was able to raise loans or receive government funds to support its exploration and production activities, he stated.

"If Pertamina had enough money, we wouldn't need any foreign oil and gas contractors here because Pertamina could simply buy the necessary technologies to develop the hydrocarbon resources itself. However, the fact is that Pertamina has no money," Ibnu said.

According to Ibnu, in order to secure high earnings from oil and gas resources, the government has to control the management of oil and gas companies and determine the prices of oil and gas.

This job has so far been done, quite capably, by Pertamina, added Ibnu, who was blamed largely for Pertamina's technical bankruptcy in late-1975 under a mountain of foreign debts reaching some US$10 billion.

Ibnu criticized the bill's provision which transfers Pertamina's authority to manage foreign oil and gas companies operating in the country under the production sharing contract (PSC) system to the government.

Ibnu believes the government is unable to manage foreign contractors, citing several cases in the mining sector where the government failed to settle disputes between mining contractors and local communities.

"The current system is good enough. So what are the benefits of changing it," Ibnu asked.

Ibnu also encouraged the government to maintain the obligatory PSC system because it had "proved to be greatly beneficial to the country".

Ibnu is known as the inventor of the PSC system, which has been imitated by several developing countries.

Under the system, Pertamina, on behalf of the government, holds the management of foreign oil and gas contractors. As such, it can ascertain the government's share in the contractors' revenues.

The proposed bill will allow foreign oil and gas companies to choose contracts other than the PSC for their operations.

Ibnu denied the allegation that the rampant corruption, collusion and nepotism in Pertamina's business was caused by ineffective control mechanisms in the existing oil and gas law.

"The current law is not corrupt, but the people are," he asserted.

"We had the same law when I was at the helm of Pertamina (from 1968 to 1976). At that time there was no corruption in the company," Ibnu claimed.

He said corruption in Pertamina started when then president Soeharto, his relatives and cronies began doing business with the company.

Ibnu was fired by Soeharto in 1976 after Pertamina defaulted on foreign debts incurred through shady business deals.

However, Ibnu insisted that Soeharto fired him because he kept blocking Soeharto's relatives and friends from entering dubious business deals with Pertamina.