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)