Pertamina to lose contract-awarding rights

Pertamina to lose contract-awarding rights

JAKARTA (JP): The government has finally gained support from
House leaders for its plan to take over contract-awarding rights
from state oil and gas company Pertamina, a move that will end
the latter's decades-long monopoly of the country's oil and gas
sector.

Minister of Mines and Energy Kuntoro Mangkusubroto said on
Friday all faction leaders in the House of Representatives had
agreed that Pertamina should cede to the government the right
given the company in a 1971 law.

He said the faction leaders also agreed that the government
could handle awarding and managing mining rights and would not
have to establish a new state company for the purpose.

"We have passed the most crucial issue in the oil and gas
bill. The government's functions (that have been delegated to
Pertamina) will be returned to the government," Kuntoro said in
a weekly news conference.

Kuntoro held a meeting with faction leaders Thursday evening
after failing to reach agreement with the House's special team
for the deliberation of the oil and gas bill on the issue despite
weeks of lobbying.

The special team earlier agreed with Kuntoro on most items in
the bill, including the lifting of Pertamina's monopoly on the
country's oil and gas downstream sector.

But most members of the special team rejected the clause that
required the transfer of the contract-awarding authority from
Pertamina to the government.

Legislators said the right should be retained by Pertamina or
provided to a new state company.

They also warned the government should not make business deals
with private companies to avoid the possibility of litigation.

Many analysts predicted the deliberation of the bill could be
deadlocked if Kuntoro and the House refused to compromise on the
issue.

Kuntoro then moved to lobby faction leaders to support the
bill.

Transition

Kuntoro noted they were still to reach agreement on the length
of the transition period before the government assumed the right.

"This is the only issue that we have yet to agree upon during
the debate of the bill," he said.

Under the bill, Pertamina will become a limited liability
company and transfer its oil and natural gas contract-awarding
rights to the government by two years after the enactment of the
law.

Kuntoro said the faction leaders demanded the government give
Pertamina a longer transition period to allow it to become "a
strong, reliable and competitive company" before it was stripped
of its privileges.

"The term 'strong, reliable and competitive' is really
abstract. How long does Pertamina need to become strong and
competitive? The government is of the opinion that two years will
be enough for Pertamina," Kuntoro said.

He said the government was engaged in intensive discussions
with the faction leaders to determine the transition period.

"We shall not consult with Pertamina on this issue," Kuntoro
said.

He was optimistic that the House would approve the bill on
Aug. 23.

Pertamina was shaken recently by a report by independent
auditor Price WaterhouseCoopers, which found the state company
lost US$6.1 billion between 1996 and 1998 through corruption and
inefficiency.

The report warned the company must enact changes at every
level of its organization. (jsk)