Pertamina clarifies tanker tender bids

Pertamina clarifies tanker tender bids

The Jakarta Post, Jakarta

The sale of two giant Pertamina tankers followed proper
procedures, and Norwegian shipping giant Frontline Ltd., to whom
Pertamina is selling the tankers, was the winning bidder, the
state oil and gas company said on Tuesday.

Alfred Rohimone, Pertamina's chief financial officer, made the
statement to clarify The Jakarta Post's previous report stating
that Indian firm Essar Shipping Ltd, rather than Frontline, was
the top bidder.

The report was based on a copy of the letter dated May 26
signed by Pertamina's divestment team head Andri T. Hidayat,
containing the shortlist of bidders based on a review of the
bidders by Goldman Sachs, Pertamina's consultant for the sale of
the tankers, which are termed Very Large Crude Carriers (VLCC) in
industry parlance.

Alfred dismissed the Post's report as "incomplete" as
Pertamina's board of management had later met to make a final
decision on the winning bidder.

On June 6, Alfred recalled, the board was inclined to name
Frontline as top bidder, followed by Essar and Overseas
Shipholding Group Inc. (OSG) after assessing various aspects,
including their bid prices, their ability to close the deal,
their reputations and their ability to put up bid bonds. During
the review, the bid price was valued at 80 percent of the total
value, while ability to close the deal was rated at 5 percent,
reputation 5 percent, and ability to provide a bid bond 10
percent.

Frontline, a shipping giant listed on the New York Stock
Exchange, beat Essar in all respects, except for the bid price.
Essar offered US$183 for the two VLCCs, which are being built by
South Korean firm Hyundai Heavy Industries, while Frontline set
its price at $178 million.

Given its high offer price, Pertamina was still interested in
offering the tankers to Essar.

On June 8, Essar sent a letter assuring Pertamina that it
could provide bid bonds worth US$10 million. Petamina thus
decided to sell the tankers to the firm. But later on the same
day, Essar said the bid bonds could be only converted into cash
in 10 days given the capital controls imposed by the Indian
government.

Essar further proposed to disburse the down payment in
installments rather than fully disbursing it within two days of
the signing of the purchase agreement. The down payment amounts
to 20 percent of the total value.

Worried about Essar's capacity to pay for the tankers,
Pertamina then turned to the runner-up, Frontline, calling on it
to raise its bid price to a competitive level compared to
Essar's. Frontline then raised its price to $184 million. Unlike
Essar, Frontline did not have difficulties in providing the bid
bonds or making down payments on the tankers.

"Negotiation is normal when it comes to selecting shortlisted
bidders," Alfred said.

Hyundai is building the VLCCs on the orders of Pertamina's
previous management led by Baihaki Hakim. The current management
led by Ariff Nawawi decided to sell them on the grounds that the
tankers would add to the financial burden on the state company.

Pertamina's chief commissioner Laksamana Sukardi, who is also
the state minister for state enterprises, reiterated on Tuesday
that the sale of the tankers was the right decision given the
financial difficulties now confronting the country's largest
state enterprise.

Rather than engaging in the tanker business, Pertamina would
be better off using its money for its core business -- oil and
gas prospecting and production -- by, among other things,
developing the many marginal fields found in Indonesia, Laksamana
said.

He noted that the global tanker business was risky and
volatile, which was why very few oil and gas firms were also
engaged in the business.

Meanwhile, the Federation of Pertamina Labor Unions (FSPPB) on
Tuesday rejected the sale of the two giant tankers, saying the
arguments in favor of their sale were not convincing.

The FSPPB says it represents 16,000 members from 14 labor
unions within Pertamina.