KPPU can't count: Sales of tankers let to a big profit for

KPPU can't count: Sales of tankers let to a big profit for
Pertamina and the State

Todung Mulya Lubis
Jakarta

The Business Competition Supervisory Commission (KPPU) ruled
on March 3 that Pertamina, Frontline (one of the largest
independent operators of supertankers in the world, with a
listing in New York, London and Oslo stock exchanges) and Goldman
Sachs (a global investment bank) have colluded in the sale of two
supertankers. As a result the state lost up to US$20-50 million.

Since then, various opinion leaders have applauded the KPPU
for uncovering this 'corruption case' and assisting the
government in its fight against KKN (corruption, collusion and
nepotism).

This is where the fairy tale ends. The sad news is that the
KPPU-ruling is clearly politically motivated and is not based on
facts or common accepted legal principles.

Worse, the team of KPPU uncovered nothing. The case is
baseless. There is no loss to Pertamina or to the state in this
case. In fact the state made a healthy profit of $54 million on
the sale. The math is easy. Pertamina bought the two supertankers
for $130 million. It sold them for $184 million. In most
calculations this would be considered a profit of $54 million.

One can very well defend the position that the state made a
profit of $184 million on the sale of the supertankers. Because
Pertamina would have lost the tankers if it had tried to get them
delivered. Karaha Bodas Company (KBC) had threatened to seize the
tankers upon name transfer from Hyundai, the shipbuilder. Hyundai
even wrote Pertamina that it was extremely concerned if it would
still have to deliver the super tankers to Pertamina.

In other words: Hyundai could no longer deliver the tankers to
Pertamina. This was no empty threat. KBC succeeded in seizing
assets of Pertamina in the United States, Hong Kong and
Singapore. And it almost succeeded in South Korea. KBC was keen
to get their hands on the ships. These super tankers were
Pertamina's only major assets left outside Indonesia.

Pertamina's Board of Directors and Commissioners and Goldman
Sachs should be applauded for successfully concluding the sales
process, which would otherwise have led to a possible loss of
$184 million to our national oil company and the Indonesian
state.

There is more that doesn't make sense in the ruling. According
to the KPPU, Pertamina, Goldman Sachs and Frontline colluded to
defraud the state. How can you defraud the state by organizing an
international tender and declaring the highest bidder as the
winner? If the winning bid by Frontline, a Norwegian company, was
artificially low, as the KPPU alleges, why didn't the other 42
companies that had accepted to participate in the tender submit
higher bids. Did all 43 shipping companies collude?

The KPPU claims that the real value of the two supertankers
was not $184 million (Frontline's winning bid) but between $204
million and $240 million. In other words the KPPU claims to know
the market better than all the leading shipping companies in the
world that operate supertankers.

It is untenable to argue that an international auction with
43 invited bidders from all over the world would result in a sale
at less than the perceived fair value. In any event, it was
Pertamina's decision to auction the oil tankers and accept the
highest offer tendered after an extensive transparent
international auction process.

And finally, what would be the interest of Goldman Sachs in
engineering this so called collusion. Goldman Sachs as the
financial advisor to Pertamina was paid a percentage of the sales
prices as a commission for organizing a transparent auction. So,
the higher the price for the tankers the higher the commission
for Goldman Sachs.

This leads us to the question: Why did the KPPU give this
logic-defying verdict. The answer is that Frontline and Goldman
Sachs are the innocent bystanders in a political battle between
two factions within Pertamina. Let's call them the pro and the
anti supertanker faction.

The case started when under the leadership of Baihaki Hakim
the cash-strapped national oil company decided to become the
biggest operator of supertankers in the world. Why not?
Pertamina's objective was to ultimately own a fleet of 38 of
these gigantic and expensive ships. Frontline currently the
biggest operator owns 35 super tankers. Pertamina awarded the
order to build the first two to Hyundai.

But the new CEO, Ariffi Nawawi, who took over in October 2003,
decided to sell the tankers. Pertamina, virtually without cash
needed the money to develop oil and gas fields instead of
attempting to become a shipping company.

The writer, a lawyer in Jakarta, is legal counsel to Goldman
Sachs.