Indonesian tanker deal greases old
wheels By Gary LaMoshi
DENPASAR, Bali - Entering the home stretch of
Indonesia's first direct presidential election on July
5, there are only a couple of sure bets. One is that all
the candidates promise to fight corruption. You may find
that hard to believe since the candidates are or
recently were in leading positions to address this
problem and neglected to act.
The fate of a
tanker order from state oil company Pertamina will help
set the betting line on whether the next presidential
administration will take a different attitude toward
corruption. Don't bet on any candidates racing to seize
the opportunity to take the lead on this issue.
The tanker case illustrates the pervasiveness
and persistence of KKN - korupsi, kolusi,
nepotisme - in Indonesian business, particularly in
the areas where it intersects directly with government.
The chronology indicates how quickly the window for
seriously combating corruption opened and how fast it
can slam shut. The required marathon effort to reduce
corruption seems to have been cut to a dash that's
already been run.
Perky
Pertamina Pertamina has occupied a special place
among Indonesia's state companies. Founded in 1968 just
after Suharto's election to the presidency from oil
companies formerly controlled by the military, Pertamina
quickly became a cash cow for the connected. The
monopoly ran up foreign borrowing of US$10 billion by
the mid-1970s, much of it for projects that had no
connection to the energy business, then prompted the New
Order's first economic crisis when it tried to renege on
some of that debt. While the methods and tactics changed
over the years, Petramina produced steady gushers of
graft.
In 2000, president Abdurrahman Wahid
appointed an outsider, Baihaki Hakim, from petroleum
rival Caltex Indonesia, as Pertamina's new top executive
with a mandate to clean up the company. The appointment
followed a special audit of Pertamina's books that
turned up startling abuses.
Auditors counted
losses of more than $6 billion in a period of just two
years. That's more than a $250 million per month, $8.2
million a day, including Saturdays, Sundays and
holidays. One leading driver of abuse was Pertamina's
sweetheart contracts to transport oil. Pertamina paid
about one-third above market to charter tankers, and a
small circle of local operators comprised winning
bidders. Those grateful shipping magnates could share
the wealth with the Pertamina executives greasing the
skids for them.
Hakim acted to remove the
distortions and limit the drain on company - in this
case, public - cash. He opened bidding to foreign
shippers and applied greater oversight to the process.
Hakim also persuaded the company's board to beef up
Pertamina's own transport capabilities. Cutting down on
tanker leasing would be the surest way to cut down on
corruption.
In 2002, Pertamina signed a $130
million contract to buy two new tankers in the Very
Large Crude Carrier (VLCC) class from South Korea's
Hyundai Heavy Industries. Each tanker measures 330
meters long - it could fit the Eiffel Tower and a 747 or
two in its hold - with a capacity for 2 million barrels
of oil. The first tanker is due to be delivered within
weeks. The question now is whom to deliver it to.
Outsider out While Hyundai was
building the tankers, the old guard was rebuilding its
influence at Pertamina. Like many other New Order
interests, it found renewed sympathy when Megawati
Sukarnoputri replaced Wahid as president.
Megawati's regime backed a management overhaul
at Pertamina last September. Hakim was ousted as
president in favor of Pertamina lifer Ariffi Nawawi, and
Megawati loyalists took seats on the firm's oversight
boards. One of their top priorities - while Indonesia
was sliding from net oil exporter to importer - was
scuttling the tanker deal. That would bring back the
good old days of exorbitant profits for all.
Pertamina's new managers don't say that, of
course. Nawawi argues that owning two VLCC tankers is a
luxury that Pertamina cannot afford. He also claims
leasing will save money and increase flexibility for the
state company.
Even assuming Pertamina's
assertion that it could negotiate charter contracts like
a normal business instead of charity for the wealthy,
outside experts dispute those savings estimates and
other claimed benefits. With the impending end of its
monopoly, many industry analysts assert that owning
tankers could give Pertamina advantages on the home
front to help it weather the transition.
Frontline report Pertamina has
reportedly reached an agreement to sell the tankers to
oil-transport specialists Frontline Ltd for $184
million. (Pertamina has declined to confirm the
agreement.) In the event of a sale, given the lack of
VLCCs available at the moment, there's a strong chance
Pertamina could lease back one of the tankers. The
apparent premium in the price reflects that current
supply gap - it takes about two years from order to
delivery for a VLCC tanker - but it's not much after
factoring in Pertamina's financing costs, as well the
commission to investment bank Goldman Sachs for
brokering the sale. (Nice to see how globalization lets
Wall Street get a piece of Indonesian graft.)
In
connection with the deal, 15 key legislators from the
energy and mining committee of the House of
Representatives went on a junket to Hyundai's shipyard
in Ulsan, South Korea, and to the Goldman Sachs
conference room in Hong Kong. They came away persuaded
to support the sale. However, House Speaker Akbar
Tanjung, who knows a thing or two about corruption cases
himself (see Tanjung acquittal:
Verdict against reform, February 14), has
passed the decision to President Megawati, in the midst
of campaigning for re-election.
After her
party's lousy showing in the April legislative election
with 49% fewer votes than in 1999, Megawati's campaign
has taken to waving the reformasi banner once
again. She's pledging to stamp out corruption, even
promising to put Suharto on trial.
The Pertamina
tanker deal would be a good place to start her war on
corruption, if she is serious. Explanations from Nawawi
about the advantages of selling aren't fooling anyone.
Throughout the economy, the voters know what's going on.
Foreign investors know - they cut their new investments
in Indonesia by 41% in the first five months of 2004.
It's time for politicians to show they're not getting
fooled, or taking the public for fools, either.
It's a good bet that Megawati's government won't
announce a decision before July 6, three days ahead of
the first tanker's scheduled delivery date and one day
after balloting in the presidential election. It's an
even better bet that players with big bankrolls will
know the answer in time to place their wagers before
election day.
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