OPINION: Octopus of corruption, collusion and nepotism at Pertamina

Indonesian Corruption Watch is known for its critical view of state oil and gas company. Agam Fatchurrohman, head of the investigation department of the anti-corruption watchdog, wrote an article on corruption at Pertamina at the Saturday (October 28, 2000) edition of Business Indonesia daily. The translation of the article is as follows:

Pertamina has been weakening its fight against efforts to dismantle its monopoly on the oil and gas businesses. Long before the oil and gas bill is deliberated by the House of Representatives - slated early next year-- the government, through the Ministry of Energy and Mineral Resources, has submitted a concept of restructuring for Pertamina to the President.

Based on the restructuring concept, Pertamina's businesses would be narrowed down to two main areas, namely that in the upstream level and that in the downstream level. The upstream business entity would mainly combined Pertamina's existing exploration and production units, while the downstream business would merge the directorate of processing, directorate of domestic storage and marketing and the directorate of shipping, communications and airport management.

Meanwhile, the powerful agency to handle foreign contractors (BPPKA) would be liquidated and the licensing authority would be taken over by the government through a government-appointed team.

And Pertamina would be forced to reduce its manpower from around 25,000 people now to 17,800 people in 2005.

And where is the octopus of KKN in Pertamina. It is best to use a corruption formula designed by Robert Kligaard: C = M + D - A (Corruption = Monopoly + Discretionary - Accountability) to understand KKN in Pertamina.

Monopoly. Pertamina has been holding an outright monopoly in the oil and gas sector since 1971, when Law No. 8/1971 on Pertamina was passed. Before this law existed, the oil and gas sector was governed by Law No. 44 Prp 1960 on oil and gas. However, in the 1960 law, it was stated that the oil and gas businesses would be conducted by the state through state enterprises. And this was supported by the 1971 law on Pertamina.

Pertamina was established in 1968 through a merger of a number of state oil and gas companies to become an integrated state oil company, controlling oil and gas businesses right from the upstream to the downstream level, from oil and gas exploration to fuel distribution businesses. Besides, Pertamina also holds the authority to give exploration licenses to foreign and domestic oil and gas companies through its powerful BPPKA.

From that monopolistic practices, Pertamina is prune to KKN practices. The best way to know KKN in Pertamina is by reading an efficiency audit report by PriceWaterhouseCooper (PwC). In the report, it is stated that BPPKA has overlapping functions, and therefore missed some key points in its supervision duties. BPPKA does not require oil and gas contractors to make a good restoration program on abandoned oil and gas fields, allows the monopoly of insurance coverage by PT Tugu Pratama with more expensive insurance premium. PwC discovered more and more inefficiencies in Pertamina, in many parts of its operations.

However, based on information collected by ICW, there are more big loopholes for KKN that were not touched by PwC audit. The loopholes were in the process of awarding of oil and gas field to contractors; This opened possibility of collusion between contractors and officials at BPPKA. And the second biggest loopholes were in the calculation of cost recovery, which were all born by Pertamina. Because of KKN practices, cost recovery funds were mostly marked up resulting in the loss in the part of Pertamina, and eventually the government. By ICW calculation, the income ratio of 85 to 15, in which 85 percent of income - after being reduced by cost recovery - going to the government and 15 percent to the contractor does not work well. In reality, the ratio would be 50 to 50.

Lacking in accountability. Based on PwC finding, Pertamina does not have adequate information technology and operational procedures to prepare an acceptable and reliable financial report in a timely manner, that could consolidate 44 business units. Moreover, it has never been able to consolidate and present a comprehensive financial situation in its whole operation. Still more damaging, Pertamina does not publish its financial reports to the public, but only to its board of commissioners. This practice shows that Pertamina lacks public accountability.

All these things only confirm Kilgaard formula on the octopus of Pertamina's KKN practices. (*)