Pertamina problems not just technical, clearly 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.