Dec 5, 2014 4:00 PM GMT+0700
Indonesia will improve transparency at its offshore oil trading company as President Joko Widodo takes steps to clean up the energy industry, according to the government’s new oil and gas management reform team.
Petral, the trading division of state company PT Pertamina, buys crude and fuel on international markets to ship to Indonesia, a net oil importer. The unit has become a target for the reform team as the government seeks to reduce the influence of a so-called energy “mafia” in the country, Faisal Basri, the head of the team, said in an interview in Jakarta yesterday.
“There’s pressure to dismantle it, but we can’t just do that,” Basri said. “Our task is not to catch the mafia, but to create a business climate for all to participate by the new rules. Our recommendations will be the new rules.”
Widodo, known as Jokowi, has prioritized changes to the energy industry since taking office in October — cutting the fuel subsidies that have crimped the budget, appointing people with anti-corruption experience to the energy ministry and regulators, and setting up the oil and gas reform team last month. Last week, his government dismissed all Pertamina directors and named Dwi Soetjipto as the new chief executive.
Reviewing Petral and its purchasing system will be one of the main tasks for the new board at the oil company, according to state-owned enterprises minister, Rini Soemarno. Pertamina will also seek to prevent leaks in the distribution of subsidized fuel and review its supply chain and storage capacity, Soetjipto said last week.
“The opaque offshore company handles vast volumes of transactions, which inherently entails potential for abuse,” said Kevin O’Rourke, a political analyst who wrote “Reformasi: The Struggle for Power in Post-Soeharto Indonesia.” “The government should abolish Petral and prohibit any of its incumbent personnel from serving in a new entity. Anything less would be a half-measure.”
Relocating Petral, based in Hong Kong and with trading operations in Singapore, to Jakarta would be “so difficult,” given the city-state has access to financing, international oil companies and shipping logistics that Jakarta can’t quickly match, Basri said. Indonesia would need to merge two of its state banks, PT Bank Mandiri and PT Bank Negara Indonesia, just to be able to cover Petral’s financing needs, he said.
With Petral importing 500,000 barrels of oil per day, more transparency is the next step, Basri said. Friends warned him to be careful when he took the job, said Basri, 55, a university lecturer and former candidate for Jakarta governor. Jokowi wants to make the industry as clear as an aquarium so that the players involved can be seen, he said.
“If Mr. Jokowi as President is brave, then I’m not afraid either,” Basri said.
The oil “mafia” has led to worsening industry production and inefficiency, compounded by permit complexities and weak regulation, said Sudirman Said, the energy and mineral resources minister, when he announced the creation of the reform team last month.
“Oil and gas mafia are rent seekers who have closeness and influence on high-ranking officials in taking decisions,” Said said.
Closing down one entity might just lead to another popping up, said Tony Regan, a consultant at Tri-Zen International in Singapore. The government’s main priorities should be to reduce the number of permits companies need and to speed up the approval process to increase gas production, he said.
“That would give a lot more confidence to the gas developers, the producers, and then they would need less oil,” said Regan.
Pertamina met the oil reform team this week to discuss the potential for changes, said Ahmad Bambang, one of three new directors at the state company. Petral needs a $5 billion credit facility, which Indonesian banks can’t provide, he said.
“We welcome being audited,” Bambang said. “The team aims to improve the sector in terms of transparency and efficiency.”
To contact the editors responsible for this story: Stephanie Phang at firstname.lastname@example.org Neil Chatterjee