Pertamina lost $4.69b, Bulog $840m: Auditors

Pertamina lost $4.69b, Bulog $840m: Auditors

JAKARTA (JP): Independent auditors have found losses amounting
to US$4.69 billion at state oil and gas firm Pertamina and Rp 6.7
trillion ($840 million at the current rate) at the State
Logistics Agency (Bulog).

Minister of Finance Bambang Subianto said on Monday that
Pertamina's losses, which were found by PricewaterhouseCoopers
(PwC) for the period from April 1996 to March 1998, were caused
by inefficiency, loss of income opportunities and future
obligations.

Bambang added that auditor Arthur Andersen determined Bulog's
losses for the period spanning April 1993 to March 1998 and
attributed them to unfavorable business contracts, irregularities
and weak supervision.

He said that various factors -- including unfavorable
regulations, protracted bureaucratic procedures and outside
intervention -- caused Pertamina to be unable to operate as an
efficient, profit-oriented firm.

"Various parties that have key positions or strong influence
played an active role in getting contracts or business
cooperation from Pertamina," he told a news conference announcing
the results of the audits.

Bambang said PwC did not identify by name the influential
parties or people because the audit was primarily aimed at
finding ways of improving the efficiency and profitability of
Pertamina.

Analysts and legislators have often alleged that Pertamina was
a cash cow for the family and associates of Soeharto during his
32-year presidency which ended in May 1998.

Bambang said in a statement that $2 billion of Pertamina
losses were caused by inefficiency, between $1.27 billion and
$1.97 billion by lost income opportunities and $721 million by
future obligations.

Results of the special audits of Pertamina, Bulog and the
state electricity company PLN, made under an agreement with the
International Monetary Fund (IMF), were originally scheduled to
be announced at the end of August. The audit of PLN has yet to be
completed.

The delay raised concerns that the government was trying to
manipulate the results of the audits. A provisional PwC audit
report leaked to the media in June showed that Pertamina suffered
combined losses of up to $6.1 billion.

Bambang dismissed speculation of a cover-up, saying the
discrepancies with the initial leaked report were due to
different assumptions used in the final audit, including varying
exchange rate assumptions.

He said the government would not disclose the full reports as
agreed with the IMF and hinted that the conclusions of the audit
would not have any legal consequences.

Pertamina president Martiono Hadianto responded angrily when
asked if Pertamina would be transparent about releasing details
of the full report.

"Do I have to? If you had the report, what would you intend to
do about it?

"Transparency could be made through other means."

PwC began the Pertamina efficiency audit on Jan. 11 and
completed it on July 11. The audit covered the period April 1,
1996, to March 31, 1998.

The international auditor concluded that Pertamina suffered
some $2 billion in losses due to inefficiency during the period
because it failed to operate according to international business
benchmarks.

PwC also said that Pertamina could gain between $1.27 billion
to $1.97 billion in additional operating income in the future
through savings and value creation opportunities.

The company may also have to pay some $721 million in future
obligations because of past contracts which were not entered into
its financial books, PwC added.

PwC said the largest portion of the inefficiency losses
amounting to $1.67 billion was due to foreign exchange losses
because the company did not hedge its overseas debts.

The auditor said $116 million of the inefficiency losses were
caused by the unusually high insurance premium paid by
Pertamina's foreign contractors to insurance firm PT Tugu
Pratama.

Tugu Pratama, which for decades monopolized the country's oil
and gas insurance market, was controlled by Mohamad "Bob" Hasan,
a close associate of Soeharto.

PwC said Pertamina lost $34 million in selling lubricants and
oil solvents at prices lower than the market level and another
$90 million from shipping contracts which charged prices higher
than the market level.

Bulog, which held the monopoly in importing and distributing
essential basic commodities including rice, sugar and wheat until
1998, was found to have provided lucrative business contracts to
the family and associates of Soeharto.

The government, on the instructions of the IMF, abolished most
of Bulog's monopolies last year.

Bambang said Bulog lost Rp 2.1 trillion in dubious procurement
contracts which charged prices much higher than the market level.

Bambang added that Arthur Andersen's audit report on PLN
would be completed later this month. (rei)