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.