Pertamina struggling to improve its image

Pertamina struggling to improve its image

By Johannes Simbolon

JAKARTA (JP): The state oil and gas company, Pertamina, which
has been rocked by many scandals over the past several decades,
has returned to the press limelight with a battered face this
year, following the downfall of former president Soeharto from
power in May.

The public has long understood that the country's largest and
most strategic company has become a cash cow of corrupt officials
and Soeharto's family and cronies for the 32-year rule of the
former strongman.

But, in the wake of Soeharto's downfall, revelations by the
company over massive involvement of Soeharto's family and cronies
in its oil and gas business has greatly stunned the public.

Pertamina said it had awarded projects to, or signed contracts
with, at least 159 companies linked to Soeharto's family, cronies
and top officials through unhealthy business practices, including
corruption and collusion.

Pertamina's former president Soegianto, vowing to root out
traces of corruption, collusion and nepotism in the company,
canceled or renegotiated most of the contracts, or retendered the
projects.

He also closed company marketing offices in Houston, London,
and Singapore, and reduced the number of marketing staff in Tokyo
this year for efficiency.

Pertamina also implemented tight efficiency programs in
several pilot projects, including its own oil and gas field in
Prabumulih, South Sumatra, and its refinery in Balikpapan, East
Kalimantan.

All these actions, Soegianto claimed, would enable Pertamina
to save US$64.7 million in dollar terms and Rp 313.3 billion
(US$40.1 million) in rupiah terms per year.

But, before long, the public was again surprised by a finding
by the Development Finance Comptroller of indications of massive
corruption in the company.

The comptroller said it had found indications of corruption in
the company that could inflict a Rp 191 billion loss on the
state. The evidence was related to new cases of corruption, not
contracts and projects linked to Soeharto's family and cronies
that were purged recently from the company's book.

The comptroller also found indications of corruption in other
state companies under the technical supervision of Ministry of
Mines and Energy, including publicly listed general mining
company PT Aneka Tambang, electricity company Perusahaan Listrik
Negara, gas distribution company Perusahaan Gas Negara and coal
mining company Bukit Asam. But the amount of money that could be
lost by Pertamina is higher than in these companies.

Legislator Priyo Budi Santoso of the Golkar party said: "Many
people, including myself, felt genuinely relieved by Pertamina's
efforts to root out corruption, collusion and nepotism."

"But, the comptroller's findings are really disappointing. I
deplore the fact that many people in the company are still knee-
deep in corruption," Priyo told The Jakarta Post.

Soegianto, who took over the helm of the company in January
this year, is regarded by many as "clean" but the government does
not seem to consider him suitable for the giant task of cracking
down on the acute inefficiencies in Pertamina and changing it
into a world-class oil and gas company comparable to Malaysia's
Petronas.

Minister of Mines and Energy Kuntoro Mangkusubroto once said,
"We want to make Pertamina comparable to Petronas."

Kuntoro, believing competition boosts efficiency, ascribed
Pertamina's inefficiencies to its monopolies on the country's oil
and gas industry.

Shortly after assuming his ministerial post in May, Kuntoro
announced the government was going to draft a new oil and gas law
to scrap Pertamina's monopolies awarded by the oil and gas law of
1971.

Under the new law, Kuntoro said, the government would free it
from the unprofitable job of providing fuels to the public at
subsidized prices, which currently account for 70 percent of the
company's operations.

Pertamina will no longer hold monopolies in the downstream
sector of oil and gas as the government will open this to the
private sector in competition with Pertamina's refineries. The
open competition is expected to force Pertamina to work
efficiently and end corrupt activities, otherwise it would become
a loser and a laughing stock in the oil and gas industry.

Kuntoro also said the ministry would take over from Pertamina
the jobs of regulating and managing oil and gas contractors.

In a nutshell, Pertamina will be designed as a limited
liability company with the sole job of making money by finding
oil and gas and processing it into fuels.

Kuntoro said on Friday the government would send the draft law
to the House of Representatives for deliberation later this
month.

New boss

Kuntoro was rumored to be preparing his friend, Erry Riyana
Hardjapamekas, president of the publicly listed tin mining
company PT Timah, for the top job in Pertamina to replace
Soegianto. Kuntoro served as Timah's president from 1989 to 1994.

Analysts guessed Kuntoro, who was lauded for changing Timah
from a corrupt company into one of the world's most efficient tin
mining companies, was contemplating a plan to shed a large number
of Pertamina's 30,000 employees to improve its efficiency, as he
controversially did in Timah.

Erry was one of four candidates presented by a ministerial
team to President B.J. Habibie but the president opted for his
former assistant, Martiono Hadianto, then director general of
customs and excise at the Ministry of Finance.

Martiono served as an assistant to the then vice president
Habibie from March to May this year, until Habibie took over the
nation's top position after Soeharto resigned.

Martiono was installed on Dec. 12.

Businessman Fadel Muhammad, who is known to be active in oil
and gas services, regards Martiono a right choice, saying, "he is
a tough person, who will be able to end monopolies and stage open
competition in Pertamina's business,"

But, several legislators, including Jusuf Rizal Tjokroaminoto
of the United Development Party, suspected Martiono's
"cleanliness", citing his closeness to Aburizal Bakrie, chairman
of the Bakrie group.

Jusuf alleged at a recent hearing between Kuntoro and the
House Commission V for industry, mining, trade, manpower,
cooperatives and the environment, that Martiono's wife had once
worked for Mindo Petroleum, which controlled Permindo Oil Trading
Co., one of two companies which held monopolies in oil and fuel
imports for Pertamina for less than two decades.

Mindo was owned by Nirwan Bakrie, Soeharto's cousin
Sudwikatmono and Soeharto's son Bambang Trihatmodjo and friends.

At the behest of the government, Pertamina ended contracts
with Permindo and started importing oil and fuels by itself in
July this year.

The accuracy of the legislator's allegation remains unknown,
but Pertamina officials amusingly read and photocopy all news
articles regarding their new boss' family.

Analysts said it is not easy for Martiono to change Pertamina
into an efficient, clean and proud company in the near future.
Furthermore, Martiono may not last long in the company, given its
ties to Habibie, whose political survival remains in question.