Competition watchdog rules Pertamina VLCCs sale illegal

Indonesian competition watchdog KPPU ruled on Thursday that state oil and gas company PT. Pertamina had acted illegally in selling its 2 very large crude carriers (VLCCs) to Bermuda-based shipping giant Frontline Ltd. without prior approval from the ministry of finance and recommended that Pertamina?s top officials involved in the scheme be punished, and also imposed hefty fines to Frontline Ltd and financial advisor Goldman Sachs.

In its verdict, KPPU ruled that shareholders meeting must be held within one month to decide on legal action taken on Pertamina?s board of commissioners and board of directors who recommended the VLCCs sale. KPPU also ruled that after two months, Pertamina current finance director be barred from conducting financial transactions.

KPPU sentenced Frontline and Goldman Sachs to pay Rp. 145 billion and Rp. 79.7 billion, respectively, in fines and damages. The commission also sentenced PT Perusahaan Pelayaran Equinox, Frontline?s broker, to pay Rp. 16.56 billion in fine. KPPU ruled that Pertamina was barred from making any deal with Goldman Sachs until the fine was paid.

The verdict was read by KPPU member Pande Radja Silalahi. KPPU stepped into the VLCCs sale affair base on the possibility of violation of Anti-Monopoly and Unhealthy Competition Law.

Pertamina Corporate Secretary Sudrajat told reporters that the company had not making any decision whether to appeal against the verdict, as he said it still two weeks to make up its mind.

Pertamina under former president Baihaki Hakim ordered 2 VLCCs in 2002 as part of efforts to reduce its dependence on leased tankers from the tanker cartel, which for years had charged overly high prices. But later Pertamina management under Baihaki successor Ariffi Nawawi, decided to sell the tankers to Frontline, arguing it was cheaper to lease tankers than own them. It also said the sale would help resolve the company's cash flow problems as the sale would give Pertamina gain over US$ 50 million.

Many people, however, doubted Pertamina?s argument to sell the tanker, arguing that owning the vessels would be more profitable for Pertamina than leasing, given the state of the tanker market in future.

Last year, the government replaced Ariffi Nawawi with his directors except director of finance Alfred Rohimone were replaced.

One legal expert that was contacted by Petromindo doubted effectiveness the sentence. ?It was only in paper. I don?t think Pertamina will obey the ruling and KPPU is toothless to enforce its decision,? said the lawyer. (godang/maya)