PwC audit reports on Pertamina area unfair: Martiono

JAKARTA (JP): The audit reports on Pertamina conducted by independent auditor PricewaterhouseCoopers (PwC) are unfair, the president of the state-owned oil and gas company, Martiono Hadianto, said on Monday.

Martiono said the inefficiency reports were unfair because PwC used the world's major multinational oil and gas companies as the appraisal benchmark in its audit.

"Multinationals base their operations purely on commercial purposes, while Pertamina does not, because it often carries the government's mission," Martiono defended.

He said by using a standard that was too high the measure of Pertamina's inefficiency would certainly be overly exaggerated.

Larry Lucky, an official of PwC, said using such a high standard benchmark was logical because most of Pertamina's production-sharing partners had used such standards.

"If they are using a world class standard, there was no reason for us not to apply a world class standard to Pertamina," Larry said.

"If Pertamina wants to go global it must be inspired to do that," he added.

In its audit report, PwC found losses amounting to US$4.69 billion in Pertamina during a coverage period from April 1996 to March 1998.

The report said that $2 billion of Pertamina's losses were caused by inefficiency, between $1.27 billion and $1.97 billion by lost income opportunities and $721 million by future obligations.

However, a provisional PwC audit report leaked to the media in June showed that Pertamina suffered larger combined losses of up to $6.1 billion.

Larry explained that inefficiency meant how much cost could have been avoided if Pertamina operated in a more efficient manner.

"The lost income opportunities represented future operational gains Pertamina could have realized by optimizing its operations, processes and opportunities," Larry added.

And future obligations are those related to social, environmental and other issues in the near future that have to be quickly addressed by the government and Pertamina, Larry said.

Martiono said, however, that despite the unfairness in the PwC audit report, he would still use it as a reference for Pertamina's future efficiency program.

"There were still universal aspects in the audit that could be used as a general reference for Pertamina's future efficiency program," Pertamina said.

Martiono did not reject the possibility of pursuing legal action against Pertamina employees, who were allegedly involved in the efficiency losses.

The report divided the inefficiencies into two areas: those that were controllable by Pertamina and those that were not.

Uncontrollable inefficiencies are those arising from obstacles caused by unfavorable government regulations, law or government intervention.

Martiono said that he would report to the government on such kinds of inefficiencies so there would be some change.

The 800-page PwC audit report covers over 300 detailed recommendations for improvement to Pertamina's eight business divisions, Larry said.

Larry said these recommendations were mostly based on the audit's qualitative findings, and not the quantitative.

"But a lot of people are focusing on the dollar amount of our audit," he said.

"Not so much the number but why the number. The message (of the audit report) is what should be done by Pertamina to improve through more efficiency," he added.

He also denied the media report that said all the occurring losses in Pertamina were due to corruption.

"The media report that was instigated in the newspapers was misleading and inaccurate for characterizing all of the losses were due to corruption," he said.

He repeated that the audit was merely to identify the inefficiencies, lost income opportunities and future obligations of Pertamina.

"It was not an investigation of fraud nor a forensic audit. We are looking simply at the operations and how Pertamina manages its risks," he said.

"The audit's general recommendation was that Pertamina should continue its efficiency program, improve asset utilization, reduce operating costs, increase production and enhance the distribution chain, while improving its information technology for a better decision-making process," Larry said. (udi)