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Pertamina's new
paradigm
By Bill Guerin
JAKARTA - Despite predictions that Indonesian
state oil and gas company Pertamina faces a bleak and
uncertain future after the government lifted its
decades-long oil and gas monopoly, Pertamina president
Baihaki Hakim this week announced his blueprint for the
future.
Changes made by the enactment of Law No
22/2001 on oil and gas have, of necessity, generated a
new paradigm for the future that will see the company
focus its energies on gas distribution and trading, and
on the management of oil refineries and gas-processing
plants.
Baihaki told the House of
Representatives Commission VIII for the mining, oil and
gas industry that, in its upstream business, Pertamina
would develop its production wells in West Java and
South Sumatra, develop geothermal fields and participate
in joint venture blocks.
Baihaki has predicted a
tripling of Pertamina's pre-tax profits in the coming
five years, from Rp9.7 trillion (US$1.06 billion) to
Rp24 trillion ($2.68 billion).
Pertamina will
also revamp its refineries. Some $1.4 billion will go on
this upstream business and $680 million will go toward
improving its distribution network, buying tankers,
building fuel-oil depots, establish liquefied petroleum
gas (LPG) terminals and upgrading fuel-oil terminals in
the downstream sectors.
As a consequence of the
law that terminated Pertamina's regulatory role,
Pertamina was cut down to size and lost, or is in the
process of losing, legal ownership of all the country's
oil and gas wells.
Though it remains the sole
authorized supplier of oil in Indonesia until 2005,
parliament has stripped the company of its monopoly over
key areas of the oil and gas sector.
In line
with the Oil and Gas Law, Pertamina will become a
limited liability company, a move that is expected to
help boost its competitiveness when the oil and gas
sector is liberalized. Turning Pertamina into a
limited-liability company also removes the
contradictions inherent in Pertamina's role as the
government regulator while being a state-owned company.
The law has also ended Pertamina's monopoly in
the upstream oil and natural-gas industry - exploration,
mining and refining.
Pertamina must also unload
its non-core assets worth some Rp4 trillion after it
formally becomes a limited-liability company. Though
Pertamina wanted to retain the non-core assets by
setting up subsidiaries, the government wants it to
stick to the oil and gas sector to allow it to compete
with foreign players once the sector is fully open to
free competition.
The new paradigm will see
Pertamina focus on profit-oriented ventures that will
sharply boost pre-tax profits, and transform it into an
efficient and professional business.
Rehabilitating Suharto's biggest money machine
into such a desirable entity has not, and will not, come
easy. Parasitic brokers and other middlemen,
non-transparent bidding procedures and sheer robbery by
Suharto and his cronies, most notably Bob Hasan, helped
make Pertamina Indonesia's biggest cash cow for decades.
PricewaterhouseCoopers identified billions of
dollars in inefficiencies and potential losses in 1999.
In February 2000 then president Abdurrahman Wahid
appointed Baihaki and tasked him with cleaning up the
mess.
In the gas sector, Pertamina is dedicating
a separate operation to handling LNG produced by the
parent company. This will compete against another
state-owned enterprise, PT Perusahaan Gas Negara (PGN),
in trading LNG overseas and in distribution to the
domestic market.
Pertamina's continued leading
role in marketing LNG rankles with the other contractors
in the industry. Indonesia has two LNG plants, one in
Arun, Aceh, where a military offensive began this week,
and Bontang, East Kalimantan. A consortium led by US
firm ExxonMobil Corp owns the Arun plant, and the
Bontang one is owned by a consortium headed by French
firm TotalFinaElf and America's Unocal Corp.
The
third is the Tangguh LNG plant, being developed by a
consortium led by Anglo-US firm BP PLC, in Bintuni Bay
in far-off Papua.
A $2 billion network of pipes
and onshore processors will convert Bintuni's gas
reserves - among the largest in Asia - into LNG to
service markets in Japan, South Korea and China.
Pertamina wants a slice of the action and has
already offered the forthcoming Tangguh LNG to Japanese
buyers. Baihaki said Pertamina's move was in line with
the government's commitment to the development of the
Tangguh plant. "Development of the Tangguh LNG plant is
a national political commitment," he said.
Pertamina also plans to build its own LNG plant
in Donggi, Sulawesi, clearly sparking a conflict of
interest.
Baihaki said BP Migas had authorized
Pertamina, which handled the marketing of Indonesian LNG
prior to the 2001 Oil and Gas Law, to continue marketing
the LNG to Japan at the request of the Japanese buyers.
"The Japanese buyers are loyal and conservative. They do
not want to buy LNG from anyone except Pertamina,"
Baihaki said.
Pertamina plans to raise its
upstream output, including oil, gas and geothermal
steam, by about 84 percent over the next five years.
Pertamina's latest report says oil output is
expected to rise 28 percent to 180,000 barrels per day
in 2007 from 140,000bpd this year, gas output is
projected to increase 69 percent to 1,500 million cubic
feet per day from 900mmcfd and geothermal steam to
increase by 428 percent to 370 megawatt-hours per day
from 70MWh/d.
Pertamina will invest about $3.57
billion in developing its upstream sector over the next
five years. The additional output would more than double
Pertamina's net profit, increasing it to Rp21.9 trillion
from about Rp10 trillion this year.
The company
is set to spend some $2.08 billion next year to expand
the scope of its operations and thus firmly establish
itself as a producer, refiner, and retailer of fossil
fuels.
The discovery of substantial new
resources at Matindok-Donggi in Sulawesi, and in South
Sumatra and East Java, helped fuel Pertamina president
Baihaki's prediction that the value of the company's
assets will more than double in the next five years,
from $15 billion to $37 billion, as a result of the
expansion under way.
However, figures from the
Ministry of Energy and Mineral Resources show a steady
decline in Indonesia's oil production (both crude oil
and condensate) from 1.6 million bpd in 1995 to 1.34
million bpd in 2001 and about 1.2 million bpd at this
year's levels. Some 250,000 bpd is imported from Saudi
Arabia to meet the needs of refineries for
higher-quality crude.
Facing a decline in oil
reserves, Pertamina is expanding its production base to
sites outside Indonesia. The plan to start oil
explorations in the Block 3 western desert area of Iraq
this year has, of course, been jettisoned since the
US-led takeover of Baghdad, but Pertamina still plans to
explore new oil reserves abroad with the state oil
companies of Vietnam and Malaysia.
Pertamina's
regulatory role in the upstream sector has been taken
over by the Upstream Oil and Gas Implementing Body (BP
Migas). In the downstream sector, a separate body called
the Downstream Regulatory Agency will assume Pertamina's
role.
Non-oil-related businesses, such as hotel
chain Patra Jasa and airline Pelita Air, are to be hived
off, though there is stout resistance to this within the
company itself.
Proceeds from the sale of the
non-core assets should be used to upgrade Pertamina's
core operation, says the government, notwithstanding
that divestment of these will create substantial
unemployment.
A key non-core asset is PT Tugu
Pratama, Pertamina's insurance subsidiary. This
enterprise was the medium for a markup of 5 percent on
every insurance policy bought from foreign insurers.
Suharto friend and crony Mohamad "Bob" Hasan, now in
jail on unrelated corruption charges, headed up this
veritable cash cow, which covered operations under
Pertamina's production-sharing contracts. Under Baihaki
the 5 percent surcharge was eliminated and premiums
reduced by an average of 54 percent, saving a total of
$20 million in the first year alone.
The
management of four major oil refineries - Cilacap
(Central Java), Balikpapan (East Kalimantan), and Musi
and Dumai (Sumatra) - will go to a new subsidiary, which
will also be designated as a BUMN, or state-owned
enterprise.
The Cilacap refinery is the main
supplier of oil for the island of Java, the most densely
populated island in the country, and with the Balikpapan
refinery, which supplies sparsely populated Eastern
Indonesia, accounts for 60 percent of Pertamina's oil
production.
Pertamina contributes less than 15
percent of Indonesia's total crude. The rest comes from
production-sharing contractors including US firms PT
Caltex Pacific Indonesia, Unocal and ExxonMobil. The
biggest producer is Caltex, with an oil output of about
700,000bpd.
The new legislation returned 85
percent of these production-sharing contracts back to
the government. Pertamina's insistence that these
Western companies use approved subcontractors had
previously added as much as 20-30 percent to the cost of
oil and gas projects.
Investment in the
country's oil and gas sector is essential for it to
avoid becoming a net oil importer by 2010 as many have
predicted.
Arifin Panigoro, oil tycoon, empire
builder and ex-leader of the Golkar party, is always in
the frame when political issues come to a head. Though
owner of the oil-sector based Medco Group, he was
appointed a member of the energy commission at the House
of Representatives (DPR).
Just as the political
debate over Pertamina and the proposed new Oil and Gas
Law was picking up steam, Panigoro said: "We're
currently looking for someone who will be suitable to
carry out restructuring at Pertamina." Panigoro argued
consistently that Baihaki was not the right man for the
job.
Panigoro's bias and extreme vested interest
stem from September 1982, when his group Meta Epsi won a
tender for a Pertamina project to install gas pipes that
led into Panigoro, working with a foreign partner,
Fluor, securing the contract to build the Pertamina
refinery in Cilacap.
Baihaki, within weeks of
being appointed, blew the whistle on 159 suspicious
contracts between Pertamina and other Indonesian
companies, at least 22 of which could result in legal
action. Five of those involved Suharto's eldest daughter
Siti Hardiyanti "Tutut" Rukmana and former minister of
mines and energy Ginandjar Kartasasmita.
A
special committee set up by parliament to investigate
corruption involving Pertamina revealed in its report
last month that a number of former ministers, cronies
and members of former president Suharto's family were
involved. These include Tutut and Ginandjar as well as
former state minister of technology B J Habibie, who
later became president, former minister of mines and
energy Soebroto, and Suharto's sons Bambang Trihatmodjo
and Hutomo "Tommy" Mandala Putra.
With Baihaki
at the helm, Pertamina has certainly improved its image
by leaps and bounds. The restructuring of Pertamina's
operations, and creating a completely new corporate
culture, is aimed at preparing Pertamina to compete with
foreign companies in the free-trade era.
But the
international community is watching to see whether or
not the vested interests in the oil-and-gas industry and
political heavyweights will combine to drag the new
Pertamina back to its image as "untouchable".
With enemies like Panigoro, a close aide to the
president herself, still at large, the odds are that
Baihaki's security of tenure is far from certain.
(©2003 Asia Times Online Co, Ltd. All rights
reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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