Pertamina, unions clash over lingo

The Jakarta Post, Jakarta

Controversy over the sale of two giant tankers continued over the weekend as activists and workers argued with the management of state oil and gas company Pertamina over the accounting terms used to denote the ships.

Pertamina's management insisted the two tankers, termed in the industry as Very Large Crude Carriers (VLCCs), were the company's debts rather than assets, but activists and workers insisted they should be defined as assets.

Under the existing regulations, if the tankers are categorized as assets, Pertamina needs approval from the Ministry of Finance for the sale of the VLCCs. Press reports have suggested that the sale was made without prior approval of the ministry.

The Professional Civil Society (MPM) and the Pertamina Workers Union (SPPSI) said the tankers, which are being built by South Korea's Hyundai Heavy Industries, were the company's assets because they were paid for by Pertamina.

"The divestment of the vessels is not converting debt. The vessels are assets because Pertamina pays for them with its funds," Ismed Hasan Putro, chairman of MPM said over the weekend.

"Beside, construction of the vessels has progressed to 80 to 90 percent complete and the first tankers will be delivered in early July," Ismed said.

Otto Geo Diwara, the union's chairman, said the VLCCs had been put on the company's balance sheet as "assets which are being developed".

"It is unlikely the money paid by Pertamina to Hyundai has not been converted into assets to match the balance sheet," Otto said in the union's press release on Sunday.

MPM and the union were commenting on a statement by chief commissioner of Pertamina Laksamana Sukardi on Friday, who insisted Pertamina had not sold tankers but debt.

"Please note, this is not selling the vessels, but selling the debt. Do not assume that these (the vessels) are our assets. This is to scrap debt," Laksamana, who is the state minister of state enterprises, was quoted by Kompas as saying.

Pertamina said earlier the vessels were sold to fix its cash flow problems and to repay debt. The company said cash flows had reached critical levels due to higher crude prices.

MPM, however, said Pertamina did not borrow to purchase the vessels.

"Pertamina made a down payment and paid construction fees in installments using its own cash," Ismed said.

Under the previous management, Pertamina through its subsidiary Pertamina Tongkang planned to issue rupiah and dollar denominated bonds worth Rp 225 billion and $90 million respectively in the local and international markets to finance ship purchases and for working capital.

However, the current management quickly canceled the bond issue plan and announced plans to sell the tankers.

Ismed said the decision to cancel bonds and loan from Korean Export Import Bank, had worsened Pertamina's cash flow as it had to use internal funds to pay for the VLCCs' construction.

He said the Korean Export Import Bank had offered a low interest rate of 4.6 percent a year.

Maritime expert Raja Saut Gurning said although Pertamina would make a profit of $28 million from the sale of each tanker, the company would have to set aside $12.6 million a year, or $35,000 a day, in its budget to charter a similar type of tanker to carry crude from Middle East to Cilacap, Central Java.

Pertamina owns the largest refinery in Cilacap, which is specially designed to process Arabian light crude. Arabian light crude makes up 45 percent of total imported crude into the country, which averages at 300,000 barrels a day.