Pertamina: Not just technical but also ethical?

Pertamina: Not just technical but also ethical?

Protus Tanuhandaru
Jakarta

While not knowing when oil prices will ever come back to
earth, having Indonesia as a net oil-importer country,
notwithstanding its 43-year OPEC membership, demonstrates that
the condition of the national oil industry is much worse than
what it had been many years ago.

There is a scarcity of fuel caused by delays in disbursing
funds from the Ministry of Finance, poor levels of efficiency due
to mismanagement and rampant corruption, and ill-suited state
regulations that are most unlikely to bring investment back to
Indonesia -- all of which collectively undermine the dynamism of
the oil industry.

And as long as these serious conditions are neither redressed
nor contained, the state oil company Pertamina is more likely to
be blamed than anyone else, despite the fact that the problems
that Pertamina confronts are not just technical, but also broadly
ethical -- the sort they cannot and should not deal with alone.

One of the ethical problems, which in part guarantees that
Pertamina stays ineffective is the ambiguous role of the Oil and
Gas Regulatory Agency. Formed by the government to bring greater
efficiency to Pertamina while ensuring the greater welfare of the
people, the role of such a legitimate, non-departmental agency is
to regulate and monitor all activities relating to the oil
industry.

But functionally, it has gone awry as the agency has been
found engaging in activities beyond regulating and monitoring,
but also in activities which should be the task of Pertamina --
such as negotiating terms with foreign companies and oil traders
-- thereby raising the question of whether the role of such an
agency has not been derailed from what it was originally
established to do.

And the bottleneck is being further confounded by
incongruously overlapping state regulations, as one requires
Pertamina to directly contribute the profit it receives to the
national income whereas another stipulates that it continuously
assures the availability of domestic fuel supply.

Consequently, the company, with its resources unsustainably
stretched, is not -- and will never be -- capable of anticipating
the continuously skyrocketing price of crude oil on the
international market.

In addition to the perpetual cash flow problem other
governmental bodies, with their red tape, have been making it
difficult for Pertamina to operate in a commercially timely
manner. An example of this was the hike in domestic fuel prices
triggered by a shortage of fuel because the Ministry of Finance
did not endorse the amount requested to be disbursed in a timely
manner so Pertamina could haul petroleum into Indonesia just to
fulfill the domestic fuel demand.

Unless these problems are resolved, Pertamina will remain
inefficient, commercially impotent, will not reap optimal profits
and will be an endless burden continuously draining the national
budget.

To begin resolving these ethical problems, however, does not
mean Pertamina should deal with them alone, but to have an
additional institution -- not related to the stakeholders -- to
analyze and clarify whether roles, regulations, and interventions
have been ethically appropriate or not to date.

If they have not, such an institution will have to place the
activities back on track, to amend regulations which do not work
and which overlap, and to minimize the red tape of other
government agencies that interfere in Pertamina's activities.

Waiting for this institution to deal with ethical issues, the
prerequisite to revamp Pertamina -- before it became very much
privatized, -- is to revitalize its assets, maximize its profit
and most importantly, to have it run as a proper commercial
business that applies pure, professional business principles.

Core issues should include maximizing shareholder (the public)
value and not patronizing other groups and assorted vested
interests. And as soon as regulations and roles are no longer
ambiguous and overlapping, Pertamina can then become a world
class corporation that is transparent, accountable, professional,
and most profoundly, financially independent and commercially-
receptive to the dynamic condition of the global oil market.

Still, making these two work abreast will definitely require
close coordination in which corporate leadership is somewhat
extraordinary -- capable of carefully restructuring the company
while maintaining the trust of its shareholders, engaging other
regulators and building credible lines of communications with the
wider community. The corporate leader needs to be able to think
outside the existing box of management and policy approaches.

Seeing these as criteria, the potential leader is very
unlikely to be found within Pertamina, as it is one of the
stakeholders whose problems needs to be solved, but should
perhaps be someone who has had extensive experience in how to
resolve business issues that are ethically and politically
enmeshed, and who has neither personal commercial nor other
interests that may be considered liable to compromise objective
management and policy making.

Since restructuring means getting foreign investment to
finance the activities related, only by being free of corruption
and other ethical challenges can such a leader be capable of
having close rapport with -- and win the hearts and minds of --
potential investors, both foreign and domestic, who have been
skeptical of how and when the Indonesian oil and gas industry,
however abundant resources are, will change for the better.

While candidates still have to think of how to meet these
criteria, other challenges such as gender perspectives, however,
might arise when women offer their leadership, but are rejected
merely on the basis of gender and deemed as not having the
"mettle and the logical reasoning" men are assumed to have.

But this is not true.

Such preponderant misconceptions have long been debunked and
are no longer valid, as there are many women -- Indonesians
included -- who have provided great corporate leadership,
especially to companies in time of great distress. And, likewise,
the whole idea of how to appropriately solve the ethical problems
will be mere platitudes and meaningless if the gender perspective
becomes another ethical issue. Keeping women out of the national
oil industry unethically abridges their right to lead the state
oil company.

So overall, solving potential ethical issues, whatever they
might be, would mean to understand how to ethically approach them
and finding the best solution.

The writer is a World Bank consultant. This article reflects
his personal views. He can be contacted at protust@yahoo.com.