Rent seekers in Pertamina
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?
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?