Reforming Pertamina and PLN
By T.N. Machmud
JAKARTA (JP): One cannot help but applaud the agenda Minister Purnomo has set himself and his ministry. As he described in The Jakarta Post on Aug. 21, it will require an all out effort by the ministry. Restructuring both state-owned oil firm Pertamina, electricity company PLN and providing the direction needed by these two important state-owned enterprises is a full-time job in itself. One significant contribution he could make would be to help provide the legal framework to realize his five goals and select the right people to manage the job. Selecting the right people will be the key to success.
The minister was quoted as referring to Tan Sri Datuk Seri Azizan Zainal Abidin of Malaysia as an example of a chief commissioner who devotes his full time to Petronas.
From Petronas' experience, we can testify that Minister Purnomo is totally correct in that observation. He is also correct in pointing out that a commissioner of Pertamina should not have to be a minister. In our system, however, as dictated by Law No. 8 1971, certain ministers, including the Minister of Energy and Mineral Resources, are appointed unofficially as Pertamina commissioners. With the enormous workload carried by those ministers they cannot be expected to devote much of their valuable time to Pertamina.
Minister Purnomo also mentioned that improvements in both the system and operation through the new law on oil and gas may prevent past practices of corruption, collusion and nepotism (KKN). He said this is because the new law is expected to introduce competition both in the upstream and downstream sector, while increased competition will tighten loopholes normally involved in KKN.
While this is basically correct, we also need to make sure that the legal framework replacing the present one also removes the legal basis that has made KKN possible. These are not limited to the government's cumbersome tendering rules, which are now also applicable to the investor community, despite the fact that projects involving production-sharing contracts are not financed by the state budget. These are relics from the past created by the New Order government to create sources of funds that now need to be erased.
Minister Purnomo's comments go to the heart of the question of what is good corporate governance. This is favorite jargon among the elite and a lot of lip service has been paid to it. Yet, when it comes to applying the concept we fail to act.
One important ingredient of good corporate governance is the ability to select the right people for commissioners. In Pertamina's case it indeed does not have to be a minister, but a professional, someone with a broad background in industry as well as integrity and credibility.
In countries with a more advanced outlook toward business, a board of directors may be the equivalent to our board of commissioners. The individual selected is often a chief executive officer of an unrelated industry but nevertheless selected in the expectation that he or she can bring wisdom in dealings related to many management issues that come to the attention of the board. It is that kind of wisdom which counts as it comes from years of experience in the trenches.
Other commissioners may not hail from industry circles at all but could be selected from the education sector; some may even come from government.
What is important is that it should be a full-time job. A major company like Pertamina or PLN deserves that kind of attention. Yet Law No. 8 1971 shows that the selection of Pertamina commissioners contradicts good corporate governance. Because, even if better candidates are available for the job of Pertamina's Board of Commissioners (DKPP), we miss out on the opportunity to elect them for office for reasons that the legal framework prohibits us from doing so. This is sad but true.
No wonder that efforts are afoot to change the legal framework. Under the proposed new law on oil and gas, now being discussed in the legislature, Pertamina would revert to becoming a regular state enterprise (Persero) and the selection of commissioners would have to be viewed in the light of regulations dealing with state enterprises in general, where a general meeting of shareholders, among other things, may determine who is appointed commissioner. This would appear to be a better process, as long as the criteria for being elected commissioner is correct -- and this is where we often go astray and end up appointing friends of friends of friends.
At the government's behest, a committee was formed called the National Committee on Corporate Governance. The committee, earlier this year, issued a Code of Good Corporate Governance. The code mentions both experience and good character as requirements for being elected a commissioner by a general meeting of shareholders.
Minister Purnomo's remarks make us believe that he is searching in the right direction.
The writer is a retired president and CEO of the oil company, Arco Indonesia and is now senior advisor at the law firm, Kartini Muljadi SH & Rekan. He lectures at several business schools in Jakarta.