ANALYSIS: SKK Migas faces heavy task after Rudi arrest

By Johannes Simbolon

The country?s oil and gas upstream sector authority, formerly called BPMIGAS, now SKK Migas, has been dealt two successive heavy blows in less than one year: The dissolution by the Constitutional Court of BP Migas in November last year and the arrest the Corruption Eradication Commission (KPK) of SKK Migas? Chairman Rudi Rubiandini this week.

BPMIGAS was dissolved by the Court based on the petition filed by a number of academics and organizations (including the country?s second largest Muslim organization Muhammadiyah) who argued the agency had mismanaged the national oil and gas upstream sector as it had always favored foreign investors over national companies, particularly state owned PT Pertamina. The Court did not cite the argument as the reason for its ruling to dissolve the agency. Instead, it declared the existence of BPMIGAS was in conflict with the country?s 1945 Constitution which states ?earth and water and all the wealth therein should be put under the control of the government and be utilized to generate maximum benefits for the people?. The Court?s argument was that due to the existence of BPMIGAS, the government has lost control of the country?s oil and gas industry.

Indeed, under R. Priyono, the last chairman of BPMIGAS, the agency looked very strong and independent. He several times rejected the instruction of the then minister of energy and mineral resources, thus underlining the agency?s independence. Under the 2001 Oil and Gas Law, which is being amended at the House of Representatives, the head of BPMIGAS was selected by the House of Representatives from the names proposed by the President and he or she was accountable to the President.

The decision to dissolve BPMIGAS was not popular among foreign investors and many academics. Moody's Investors Service, for example, said that the move was a negative one for Indonesia and that it might hamper investment. However, many members of the public in Indonesia welcome the decision during talk shows on TV and radio stations. They accused BPMIGAS of embezzling oil money and being the main actor behind the government?s plan to raise fuel prices. Many of them were apparently not well informed about the role of BPMIGAS, were not aware that BPMIGAS was only handling the upstream sector and that aside from BPMIGAS, there is BPH Migas which is responsible for the downstream sector.

Like it or not, the perception of the public in general in Indonesia regarding the oil and gas industry is still not good at present despite the fact that the industry remains the largest contributor to the government?s revenue. Many people still well remember the rampant corruption and cronyism in the industry during former President Soeharto?s New Order era, when the industry was placed under the supervision of Pertamina. After BPMIGAS was formed in 2002 to take over Pertamina?s functions of supervising the oil and gas contractors, there was an optimism that the industry would be better managed and as a result would strongly grow. The optimism was however short-lived. Instead, BPMIGAS became subject of suspicions following the decline in the country?s oil production, the rise in the cost recoveries and reports from the Supreme Audit Agency (BPK) in the middle of the past decade that there were a lot of regularities in the management of cost recovery. Fairly speaking, BPMIGAS was not responsible for all those things. The national oil production is declining due to the depletion of reserves, while the cost recoveries are increasing due to the rising costs of producing oil from old wells.

The arrest of Rudi took place at the time public distrust of either BPMIGAS or SKK Migas remains strong. The arrest seemed to confirm what many members of the public have been suspecting for many years: the management of the country?s oil and gas sector remains in the hands of corrupt people.

According to KPK, Rudi received bribes amounting to US$700,000 from Singaporean firm Kernel Oil Pte Ltd. The firm is among the 40 oil traders licensed by SKK Migas to sell the government-owned crude. Rudi has been named suspect by KPK and suspended as SKK Migas? chairman by President Susilo Bambang Yudhoyono. Based on what happened in the previous corruption cases involving governmental officials, the President will dismiss him once the court trial process of his case has started.

The bribery scandal has caused a huge damage on SKK Migas. Its reputation has been badly tarnished in less than eight months after its establishment. Fairly speaking, many of the agency?s staff are among the best brains in the country. They were graduated from reputable universities at home and overseas with some having doctoral degrees and international experiences. Many of them are willingly working for the agency with an honest purpose of doing the best for the country.

The agency has now an additional task: Rebuilding its reputation. It is a heavy and multiyear task, indeed. Whoever will be appointed to become the new leader of SKK Migas in the future, he or she should put this into priority. He or she should participate in the eradication of corrupt elements in the agency, systematically and honestly run programs to improve good governance and assure that public that the agency will be committed to eradicating corruption. SKK Migas? enemy No. 1 now is not KPK but the public distrust.