Pertamina Fights Image of Corruption in Global Push

By webadmin on 08:11 am Aug 22, 2012
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Kunardy Lie is now chief country officer for Deutsche Bank in Indonesia. (Photo Courtesy of Deutsche Bank)

Tito Summa Siahaan

Pertamina’s ambitious plan to become a global energy company, similar to Malaysia’s Petronas and Thailand’s PTT, has been hamstrung with political intervention and corruption at home.

Karen Agustiawan, Pertamina’s president director since February 2009, has promised to recruit foreign talent and capable human resources and state-of-the-art technology to help meet the company’s strategy.

“The basic [resources] and the plan are already there,” Karen told the Jakarta Globe in an interview at her residence in Patra Kuningan, South Jakarta, on Friday.

Karen, 52, has been traveling overseas, talking to executives and industry members on the best practices of managing and operating energy companies like state-controlled Pertamina. She has invited a former executive of Petronas to share his experience in transforming the Malaysian firm into a world-class oil company.

“A former CEO of Malaysia’s Petronas, Tan Sri Mohd Hassan Marican, will visit Indonesia on August 28 and I want him to meet several ministers to explain the reasons behind Petronas’s success, on what the Malaysian government has provided,” Karen said.

Hassan, chief executive of Petronas from 1995 until 2010, has been widely credited for Petronas’s rise to success.

Pertamina’s ambitious plan will not be easy to achieve, though. In the five years through 2011, Pertamina’s assets rose 58 percent to Rp 319.9 trillion ($34 billion). That was a fifth of Petronas’s $153 billion and lower than PTT’s $44.5 billion.

Just last month it transformed itself into an energy company that encompasses geothermal and coal, broadening from crude oil and natural gas.

Still, revenue and net income at Pertamina has been increasing in the past three years. Revenue rose 36 percent to Rp 589.9 trillion last year. It was considerably higher from Rp 365.34 trillion in 2009. At the same time net income rose 22 percent to Rp 20.47 trillion in 2011. In 2009 profit was Rp 16.2 trillion.

Karen said that in the past Pertamina had been implicated in various corruption practices that hurt its attempts to become a global energy player.

Pertamina, set up in 1957, has been portrayed as a cash cow for corrupt officials. During the early 1970s oil bonanza, Pertamina racked up huge debts, around $10 billion according to some estimates, due to mismanagement and corruption.

Karen identified three major challenges — a lack of understanding, intervention and the perception of corruption that refuses to go away.

“It is unfair for Pertamina to be perceived as the same company it used to be some 50 years ago,” she said, insisting that the firm had performed many good deeds for the country like paying huge amounts of tax and dividends to the state.

Pertamina, however, is still associated with the sins of corruption which “is one of the ways to distract you so you cannot perform” she said.

Even today, Pertamina is associated with corruption, with one particular name coming up: Petral, an energy-trading subsidiary that is based in Singapore.

Dahlan Iskan, the state enterprises minister, said earlier this year that Petral would be liquidated after receiving reports that its executives had amassed billions of rupiah in illegal fees from crude oil trading. But the plan was abandoned.

“Pertamina’s image is often hurt because of the many issues involving Petral,” Dahlan said then. To curb Petral’s authority, Dahlan allowed Pertamina to purchase oil directly from the producer rather than through Petral.

Karen also said that Pertamina had to deal with the central government and other state-controlled companies such as electricity producer Perusahaan Listrk Negara and airline operators such as Merpati Nusantara. Doing business with those companies caused Pertamina’s debts to rise to almost $7 billion.

“With Pertamina eyeing growth many times over, this must be stopped,” the president director said.

Aside from mismanagement, Pertamina must also deal with political intervention.

“Anything that we have done is constantly challenged. I do not know whether this is a product of reformation, but I personally think that it has gone to a point where it is too much,” Karen said.

Karen said that people involved with Pertamina did not have knowledge of the industry, but they did most of the talking and because of that, “Pertamina is perceived as the one to blame.”

Such distractions will not stop Pertamina from making acquisitions locally and abroad, Karen insisted.

Pertamina’s moves to acquire Medco Energi Internasional in 2010, the country’s largest listed oil and gas company, was scrapped at the last minute due to political reasons.

“And now our plan to acquire oil assets in Venezuela is starting to be politicized, as to why Pertamina must go there when the political environment was not there,” Karen said.

She added that Pertamina had improved a lot, which was exemplified by its partnership with some of the biggest names in the industry. “If the old image persists, it is impossible for Pertamina to get the best choice of partners.”

Pertamina has also improved in terms of internal management, Karen says.

“Now, our board of directors are no longer perceived as untouchable and more humane, in touch with the lowest level of the company’s management,” she said.

Uchok Sky Khadafi, an official at Forum for Budget Transparency (Fitra), said political intervention was an indication that managers who operate Pertamina were not free of corruption.

“If corporate governance is fully upheld, then there should not be any more intervention” at Pertamina, said Uchok, adding that many projects with a small budget were fully endorsed by officials at the company.

Pri Agung Rakhmanto, an executive director at think-tank Reforminer Institute, said that Pertamina’s image had improved in the past 10 years.

“Pertamina, however, must make more effort toward transparency, to explain its decisions to the public to completely eradicate its old image as a corrupt institution,” he said.

Pri Agung also called on Pertamina to continue to display professionalism so that people would be more reluctant to intervene in its operations.

“A constant improvement in terms of efficiency is a must for Pertamina,” he said.

Additional reporting by Markus Junianto Sihaloho