Stealing the nation's assets

Stealing the nation's assets

It is common knowledge that oil, gasoline and diesel have long
been smuggled out of Indonesia, notably to Singapore -- mostly
due to lax security and very lucrative profit potential.

Indonesia's vast coastlines provide great opportunity for
smugglers as the distance between the point of loading and
foreign points of unloading is often very short. Poorly paid
officials, police and military (naval) personnel in league with
the state oil company Pertamina, the sole supplier of such fuels,
are highly prone to corruption. Most importantly, the subsidized
prices of domestic gasoline, kerosene and diesel are around 60
percent below the prices that Singaporeans and Malaysians pay.

The customs service, the police or patrolling Navy units
reveal from time to time the interception of boats attempting to
smuggle these fuels out, but these are merely ploys to mislead
the public into thinking that the authorities are doing their
best to prevent the smuggling.

However, the recent unraveling of the massive plunder of crude
oil from Pertamina's floating storage facility off East
Kalimantan, which was then sold to some profiteers in Singapore,
was still a great shock, especially because it took place at a
time when steeply rising oil prices are threatening to lead this
country into another economic crisis.

The smuggling also was much, much bolder because the
profiteers did not buy the oil to take it out of the country, as
most others have thus far done, but they simply were pumping
crude oil directly from Pertamina's facility through its
submarine pipeline to tankers they chartered, then shipped the
oil to buyers in Singapore. The ordinary smugglers at least put
some capital up front to procure subsidized fuels and then pocket
only the profit margin between domestic and international prices.
But the thieves in E. Kalimantan simply stole this nation's crude
oil, sold it overseas and pocketed all the profit.

Even more mind-boggling was the findings by the police
investigators that the massive theft had been going on since last
October, causing perhaps hundreds of million dollars in losses to
the state. How could such a large-scale heist have occurred over
the past 11 months without being detected by Pertamina's internal
control system?

National Police Chief Sutanto told reporters after a Cabinet
meeting last Thursday that so far 58 people had been arrested --
including 18 Pertamina workers and five foreigners -- and 17
ships laden with 6,000 metric tons of diesel and kerosene had
also been seized.

Still more shocking was the statement by Pertamina chief
executive officer Widya Purnama on Friday after meeting with
President Susilo Bambang Yudhoyono that only the "little fish"
had so far been implicated in the theft and smuggling ring in
East Kalimantan. He also asserted that they had yet to
investigate to see if there were any links with some of the
executives at the state company.

How could a bunch of blue-collar workers such as a cook, a
driver and other low-ranking employees have masterminded such a
massive plunder for 11 months without being caught by the
company's internal-control system? As one of the largest
companies in the country -- though perceived to be one of the
most corrupt -- Pertamina must have established a modicum of
internal controls or some kind of a risk-management system to
detect something like this.

As a well-experienced professional manager, Widya, who managed
PT Indosat before being appointed to Pertamina, should have fully
realized that inland and floating storages -- such as the one in
East Kalimantan that can hold 135,000 tons -- are among the high-
risk areas within the operations of an oil company to which the
risk-management system should pay special attention.

The other fuel smuggling syndicates in Riau islands and
Central and East Java that the police discovered recently could
not have operated without the collaboration of Pertamina
officials. Pertamina still has a monopoly in the distribution of
fuel throughout the country, and it must know if a significant
volume originally allocated for certain areas was diverted
overseas.

Widya does not seem the type who would dirty his hands in such
blatant theft, but it does appear there was serious incompetence
in his management of the internal controls, which obviously were
a farce, and for that he ought to resign or be fired.

President Susilo is absolutely correct in setting the
eradication of fuel smuggling on the top of his concerted efforts
to deal with the fuel crisis, because rampant smuggling not only
will sabotage his programs, but also insults the public's sense
of justice. There would be enormous public resistance to raising
fuel prices if the drive against oil smugglers was not seen as
credible.

The rampant smuggling once again shows how imperative and
urgent it is now to bring domestic fuel prices closer to
international levels. As long as domestic fuel prices remain at
just 40 percent of international prices, as they are now, the
potential profit margin is too much temptation for profiteers --
in collusion with corrupt officials, military and police -- to
resist.