Clean-up goal for Pertamina By Patrick Guntensperger
JAKARTA - The historically corruption-ridden and underperforming state-run oil
and gas giant Pertamina has long epitomized all that is wrong with Indonesian
governance. Now, President Susilo Bambang Yudhoyono has focused his
anti-corruption drive on the company, promising change that many here doubt he
and his top appointee will be able to deliver.
Yudhoyono shuffled Pertamina's management in February by appointing 50-year-old
Karen Agustiawan as the company president and chief executive officer. A
veteran of senior positions at multinational companies such as Mobil Oil (now
ExxonMobil) and Halliburton, she had been groomed for Pertamina's top spot
since 2006, when she started her ascent up the corporate ladder.
Agustiawan served as Pertamina's upstream director responsible
for the development of new resources and management of existing ones throughout
2008 and is known to be intimately familiar with the company's pluses and
minuses. She now faces the uphill task of converting the state company into a
profit-producing cash cow.
Agustiawan is Yudhoyono's second top female appointee to a crucial state
economic agency, along with the widely respected Coordinating Minister for the
Economy Sri Mulyani Indrawati, to push for change in Indonesia's male-dominated
and corruption-ridden political culture.
At a recent press event, Agustiawan said her reform charge would consist of
"many elements, including grooming our corporate leaders as role models,
recognizing the need for efficiency and customer focus, instituting
whistle-blower protection, and a willingness to learn from others so as not to
be always re-inventing the wheel."
Pertamina, the world's top producer and exporter of liquefied natural gas
(LNG), is viewed by industry analysts as a perennial underperformer. The
company made a 30 trillion rupiahs (US$3 billion) profit in 2008, but earnings
may tumble 30% or more to below 20 trillion rupiahs this year, State Minister
for State Enterprises Sofyan Djalil said last week, according to a Jakarta Post
report.
Its poor reputation dates to former dictator Suharto's tenure, when corruption
ran rife inside the company. When Pertamina defaulted on its America- and
Canada-held debts in 1975, an investigation found the company had accrued US$10
billion in debts, partly through mismanagement and corruption. At that time,
the company's debt was equivalent to about 30% of Indonesia's total gross
national product.
Some say Pertamina's bureaucratic culture has changed only moderately in the
decade-old democratic era, marked by Suharto's ouster in 1998. Several company
managers were given sinecures during Suharto's time and now rarely show up for
work, allowing their junior associates to run unsupervised their divisions,
according to one foreign consultant familiar with the company's workings.
"That's probably a good thing ... they're the only ones who know what they're
doing," said the consultant, who requested anonymity. "Only problem is, they
don't have any authority: Responsibility - yes; decision-making authority - no.
That's what's got to change. And there's no vested interest in changing that
among the old timers."
Other industry analysts suggest that Pertamina's 16,000 employees are twice as
many as the company would need if it were run anywhere near international
efficiency standards. Perennial mismanagement contributed to Indonesia
reverting from an oil-exporting nation to a net importer in 2005 and caused the
country to withdraw from the Organization of Petroleum Exporting Countries
(OPEC) cartel last June.
The same analysts point to a lack of exploration, delays in getting rigs
online, and a host of other problems in a deep-rooted culture of inefficiency
as reasons for the backwards slide. That's not for a lack of resources:
Pertamina maintains 22 different exploration wells and an additional 118 are at
the development stage, many of which the company says it expects soon to bring
on-stream.
Agustiawan says she expects substantially increased production by 2012 and
other assets will come on-stream in seven to eight years. The government
estimated last year the country had 3.8 billion barrels of proven oil reserves.
Indonesia is already the world's largest producer and exporter of LNG and a
major exporter of coal. Yet many analysts believe Pertamina's chronic
mismanagement has over the years held back resource-rich Indonesia's overall
economic performance.
Reform vow
An engineer by training, Agustiawan promises a deep-reaching overhaul, both in
management and operations. She told foreign journalists in Jakarta last week
that she wants to strategically position the company more as an upstream oil
company, representing a shift from its historical focus on the downstream
sector. That will require more technical expertise including geologists,
engineers and wellhead and drilling technicians, all in short supply at the
company, according to analysts.
At the same time, Agustiawan says she aims to substantially increase the
company's - and by extension the national - refining capacity. Pertamina owns
seven oil refineries, two gas refineries and a petrochemical company. Still a
large amount of Indonesia's crude oil is exported, refined overseas, then
re-imported as pricier gasoline.
The lack of refining capacity, Agustiawan says, has kept the company from
bidding on foreign assets, including in oil-rich Iraq. It's an expansion that
regional competitors, including Malaysia's Petronas and Thailand's PTT, are now
pursuing. Even so, she says under her management, Pertamina will only be
interested in acquiring foreign assets that have greater economic value than
untapped Indonesian resources.
Some industry analysts believe Agustiawan is sending positive market signals,
that her reform plans are properly ambitious yet well-grounded in industry
realities. She said at a recent event for foreign journalists in Jakarta that
she has "no intention of re-inventing the wheel" and that the company is "in
the midst of the first five years of a 15-year plan to bring Pertamina into the
family of world-class [national oil companies]".
True to Yudhoyono's drive, anti-corruption measures will supposedly be a
prominent part of Agustiawan's reform plan. She has employed the phrase "ethics
24-7" as her personal slogan. A new code of conduct she has overseen aims to
give corruption whistle-blowers new protection and the company is developing
blacklists of former corrupt employees to bar them from being rehired.
Some analysts believe Agustiawan could leverage the economic downturn to trim
Pertamina's bloated workforce, including through early retirement programs.
When asked if mass layoffs were among her reform plans, she pointed instead to
the need for more technical staff in the upstream sector and suggested that
under her strategic direction employment in that division would increase.
She pointed out that some departments, mentioning marketing in particular, were
clearly overstaffed and under-worked, but said she lacked the authority to
drastically downsize due to the country's strict labor laws. Industry analysts
scoff at that notion, saying that many of the sinecures enjoyed by senior
management were doled out during former dictator Suharto's regime and that
Yudhoyono is reluctant to tackle his former leader's still entrenched crony
interests.
If so, then Agustiawan's hands will be at least partially tied in transforming
Pertamina into a globally competitive company. Some suggest that's why her
reform horizon spans 15 years, an eternity in any trade, particularly for the
global oil and gas industry. Over the next decade, the bulk of the excess
executives are expected to have retired from the company. Whether Agustiawan
and Pertamina have the luxury of that much time is an open and important
question for Indonesia's economic future.
Patrick Guntensperger is a Jakarta-based freelance journalist and
political and social commentator. He lectures in journalism and communications
at several universities and is a consultant in communications and corporate
social responsibility. He may be reached at pguntensperger@yahoo.ca
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