Rent seekers in Pertamina

State oil company Pertamina's questionable plan to sell two very large crude carriers currently under construction Hyundai Heavy Industries shipyards in Ulsan, South Korea, and the controversial overseas trip by 15 House of Representatives (DPR) members last week to assess the planned deal only confirmed rumors that rent seekers have again set up shop in the giant company.

Contradictory explanations from Pertamina executives and House oil and energy commission members about the three-day "working visit" to Korea and Hong Kong strengthened suspicions that the state oil company has been going all out to lobby the House to approve the questionable transaction.

Pertamina's deputy director for shipping, Dedeng Wahyu Edi, told reporters last Friday that the visit had been arranged by Pertamina to allow House members to gather more information on the merits of the planned sale from Goldman Sachs, Pertamina's consultant for the deal in Hong Kong, and from Hyundai shipbuilders in Korea.

However, a spokesman for Pertamina said on Sunday that the overseas trip was made wholly at the initiative and at the expense of the House. But many members of the commission who did not take part in the trip said they had not been informed about it. Strange too was that fact that even staffers in the commission's secretariat were in the dark about the trip, which was led by the commission's chairman, Irwan Prayitno. What also raised many eyebrows was the fact that several House members brought along their wives for what was supposed to be a tightly scheduled three-day working visit.

Pertamina appears to be highly vulnerable to once again becoming a cash cow for senior officials and politicians, especially since the installation last September of new management headed by Ariffi Nawai and a new board of commissioners chaired by the State Minister for State Enterprises Laksamana Sukardi, a leader of the Indonesian Democratic Party of Struggle (PDI-P) and a close confidante of President Megawati Soekarnoputri.

Nawawi, a career executive at Pertamina, replaced Baihaki Hakim, a former chief executive officer of PT Caltex Indonesia, who was appointed by then president Abdurrahman Wahid in February 2000 to rid the state company of its extensive, deeply-rooted web of corruption.

The allegations that rent seekers are once again getting lucrative, collusive deals from Pertamina appear more credible after Pertamina disclosed last month its plan to sell two 260,000-ton tankers, which Baihaki ordered from Hyundai at a cost of US$130 million early last year.

These tanker purchases were an integral part of Baihaki's concerted efforts to eliminate mafia-type, collusive business practices that had been milking the company of hundreds of millions of dollars in excessive tanker charges. This corrupt tanker chartering system formed part of the thick layer of corruption that independent auditor PriceWaterhouseCoopers identified in a special audit of the company conducted at government request in 1999.

The auditors found US$6.1 billion in direct losses and the loss of potential savings caused by inefficiencies and collusive business practices between April 1996 and March 1998. Hundreds of millions of dollars of these losses stemmed from long-term time charter contract rates that Pertamina was paying, normally at a 32-36 percent premium above market rates.

Armed with this audit report, Baihaki moved to improve Pertamina's bidding regime for tanker charters by inviting foreign operators to participate and by gradually rebuilding the company's fleet through the procurement of new tankers, including the two large carriers ordered from South Korea. But this move seems to have angered the businesspeople who formerly reaped huge profits from their collusive tanker deals with Pertamina, and were responsible for Baihaki's ouster from the company.

As it happened, Ariffi moved immediately to retrench on Pertamina's tanker procurement, arguing that chartering tankers on the open market would be more efficient and appropriate to the company's financial situation. But Pertamina's trade union, supported by many analysts, do not accept Ariffi's rationale, considering the latest move only a subterfuge for a return to the company's old, corrupt tanker chartering system.

Ariffi's argument that Pertamina cannot afford the two large tankers and that oil shipping is not part of the company's core business appears weak and illogical. Pertamina should instead strengthen its transportation fleet to remain competitive in the domestic market, which will soon be opened up to foreign firms under the new oil and gas law.

Ariffi also seems to be inconsistent in his stance. He said after his installation last September that he would focus on improving the marketing of oil fuels and petrochemical products. How can he hope to strengthen Pertamina's marketing system without the support of an efficient and reliable transportation fleet, including tankers, especially now that the country has become a net oil importer?