Reforming Pertamina
President Abdurrahman Wahid continues his cleanup campaign on state companies which, under former president Soeharto's rule, were exploited as cash cows for his family members and cronies. And the target this time is the biggest of them all. He appointed on Monday Baihaki Hakim, former president of PT Caltex Pacific Indonesia, as the new chief executive officer of state Pertamina oil and natural gas monopoly to replace Martiono Hadianto.
Contentiously though, Ainun Naim was appointed the new director of finance. He is a lecturer at Yogyakarta's Gadjah Mada University and is reportedly close to Minister of Finance Bambang Sudibyo and People's Consultative Assembly Speaker Amien Rais. But his five other appointees to the board of directors are all career executives of the oil company.
The President specially instructed Baihaki to clean up the corruption and collusion-plagued Pertamina, improve its efficiency, expand its oil production capacity and make it an internationally competitive oil company.
This is a tall order even for Baihaki despite his solid technical background in the hydrocarbon industry. His long experience has mostly been with the subsidiary of international oil major Caltex, which is well-known for its established organization and management system. He is now entering a bureaucratic labyrinth, which for more than 30 years was held hostage to the vested interests of the Soehartos and their cronies.
The PricewaterhouseCoopers audit on Pertamina, made last year at the request of the International Monetary Fund (IMF), uncovered how the oil company was allegedly pillaged by the Soehartos and their cronies. The auditors concluded that Pertamina lost almost US$5 billion between April 1996 and March 1998 alone due to outright corruption, inefficiency and collusive procurement contracts.
Martiono Hadianto, who was appointed by then president B.J. Habibie to Pertamina's helm in December 1998, had canceled or amended most of the questionable deals, but it will take a much longer time and require the full support of the political leadership to wholly reform the corrupt system.
Baihaki will certainly face a tough job in overhauling the bureaucratic labyrinth in place at Pertamina, but he is taking up his assignment with advantages which his predecessors did not have -- a strong mandate and the full support of the President, who has been determined to clean up the government and state companies in light of establishing a system of good governance.
Baihaki will not face any contradictory goals which could often distract and discourage even a highly professional manager. He will have the freedom to bring about changes, introduce transparency to the relationship between the government and Pertamina and follow up the recommendations of PricewaterhouseCoopers.
But this condition, though quite necessary, is not enough to ensure the smooth execution of Baihaki's mission. The reform he is about to implement, notably the drive to root out corruption and collusion, will be politically feasible only when the top leadership can secure the approval and support of other government entities whose cooperation is critical to success. Hence, it is most imperative that President Abdurrahman remains steadfast with his reform platform, and not be swayed by lobbyings from political parties which supported his election. It is also crucial that Pertamina's books are audited annually by independent accountants and not by the allegedly corruption- tainted Development Finance Comptroller (BPKP) as it has always been.
The task of increasing Pertamina's oil production, which now accounts for a mere 5 percent of total production capacity, requires the government to give the company management broader financial autonomy. This means allowing Pertamina to invest the bulk of its profits in oil and natural gas exploration, its core business. Thus far, the high risk hydrocarbon exploration sector has been dominated by foreign oil contractors partly because a greater portion of Pertamina's earnings have been earmarked for the state budget.
Baihaki's mission to make Pertamina internationally competitive amid the increasing tendency of megamergers between giant oil companies needs legislative support to allow the state company to form strategic alliances with multinational firms and to open the downstream petroleum industry, currently under Pertamina's monopoly, to foreign investors. The new Pertamina chief has less than three years to gear up for a fiercer competition from other companies in Malaysia, Thailand and Singapore under the ASEAN free-trade area.