Pertamina tanker sale fraught with 'irregularities'

Pertamina tanker sale fraught with 'irregularities'

Fabiola Desy Unidjaja, The Jakarta Post, Jakarta

The Business Competition Supervisory Commission (KPPU) declared
on Thursday state oil and gas company Pertamina and three of its
business partners guilty of colluding in the sale of two of the
company's tankers worth US$184 million last year.

Administrative sanctions were imposed on Pertamina, while the
three companies were fined, for colluding to favor a certain
bidder during the open tender.

The KPPU said the sales had violated Law No. 5 of 1999 on
monopolies and unfair business competition.

"Pertamina was found guilty of breaching articles 19 (on
discriminatory treatment in favor of certain business units) and
22 (on collusion to favor certain business units in an open
tender) of the law," KPPU official Pande Radja Silalahi said.

The commission said the tanker sales had caused the state to lose up
to $50 million as the market price of each VLCC (very large crude
carrier) was between $120 million and $150 million.

In its ruling, the KPPU ordered the Pertamina board of directors and
board of commissioners to report their wrongdoing to the
shareholders meeting as well as suspend the company's director of
finance, who played a dominant role in the tender process.

Three Pertamina's partners -- Singapore-based financial
advisor Goldman Sachs, PT Equinox, an Indonesian shipping company
that serves as a Pertamina agent, and the tender winner, Bermuda-
based Frontline Ltd, a shipping company -- were ordered to pay a
total of $61.27 billion in fines to the state as well as Rp 180
billion (US$19.4 million) in penalties.

The KPPU also banned Pertamina from doing business with the
three until they had paid the fines and penalties.

Pertamina officials refused to comment on the ruling, saying
they would study them first before deciding whether or not to
appeal.

The case first emerged last June when the sale of the
Pertamina tankers caused a storm of controversy not only because
of allegations of massive corruption, but also because of rampant
violations of the prevailing regulations.

After months spent examining 291 documents and questioning 23
witnesses, as well as three experts, the KPPU found that the
process has been fraught with irregularities right from the
beginning.

On April 28, 2004, Pertamina appointed Goldman Sachs as its
financial advisor for the sales without holding an open tender as
required by law, which stipulates that any transaction worth more
than Rp 50 million requires a public tender.

On June 2, 2004, Goldman presented to Pertamina its three
shortlisted-candidates: Essar Shipping Ltd, Frontline Shipping
Ltd and Overseas Shipholding Group (OSG). Essar was announced as
the highest bidder at $183.5 million.

However, a day before Pertamina announced the winner on June
10, 2004, Frontline through its agent PT Equinox raised its bid
to $184 million from $178 million.

Goldman presented the third bid, which was made after the June
7, 2004, deadline to Pertamina. The oil company later declared
Frontline as the winner.

For its work, Goldman received a fee of $2.18 million, while
Equinox received $1.84 million from Pertamina.

All parties were given two months to comply with the legally
binding decision handed down by the KPPU.