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.