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Home News Asia

Indonesia May Disband or Relocate State Oil Trader in Corruption Crackdown

The Irrawaddy by The Irrawaddy
December 4, 2014
in Uncategorized
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Indonesia May Disband or Relocate State Oil Trader in Corruption Crackdown

Workers of PT Pertamina Geothermal Energi (PT PGE) rotate a valve during a production test at Karaha geothermal well in Tasikmalaya

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JAKARTA — Indonesia may force state giant Pertamina to disband its Singapore trading unit or relocate it to bring more transparency to operations that supply the country with one-third of its daily oil needs, said a member of the government’s energy reform team.

Even before he took office in October, President Joko Widodo had broached the subject of halting the trading activities of Pertamina Energy Trading Limited (Petral) to crack down on corruption. But it was the first time a member of his government had raised the possibility of disbanding the Hong Kong-based company, which carries out most of its trades in Singapore.

Widodo launched an overhaul of Indonesia’s giant oil and gas sector last week, sacking the board of Pertamina and promising action on Petral, including an audit.

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“The solutions are only two: we disband (Petral) or relocate it to Jakarta so that it can answer to the many questions about its transparency,” Djoko Siswanto, a member of the energy reform team and director of gas for Indonesia’s downstream regulator, told Reuters late on Tuesday.

Critics say disbanding the company would seriously disrupt the flow of oil supplies to Southeast Asia’s largest economy, which is expected to become the world’s largest gasoline importer by 2018. Indonesia imports around 500,000 barrels of the estimated 1.5 million barrels of oil products it consumes each day.

State Enterprises Minister Rini Soemarno said last week she was considering relocating the Singapore trading business of Petral, but wanted to first hear from the newly-formed oil reform team.

The 13-member team, consisting of academics, anti-graft fighters and government officials, was created last month to recommend specific policies to clean up Petral, Pertamina and the rest of the energy industry.

The lack of transparency in Petral’s activities has raised concerns that its transactions can be manipulated by what Widodo has called an “oil and gas mafia.” Presidential adviser Ari Soemarno, a former head of Pertamina and brother of the state enterprises minister, says the mafia steals up to US$400 million a year from oil imports handled by Pertamina or Petral.

Fahmi Radhy, another member of the oil reform team, told reporters on Wednesday his group is now investigating whether any Petral or Pertamina employees are involved in the mafia.

No specific allegations have so far been made against Pertamina, Petral or government officials by the reform team.

“It’s not easy to say that ‘yes they are involved’. We have to prove it first,” Radhy said.

Indonesia’s main anti-graft agency will also launch a separate investigation into the energy sector next year.

Pertamina ‘Tired’ of Mafia Label

Petral holds a near monopoly on the trading of crude and oil products in and out of former OPEC member Indonesia. It reported revenue of $31.5 billion and net profits of $47 million in 2011, according to the latest earnings data on the company’s website.

Simson Panjaitan, head of finance, risk and general affairs for Petral, said that in his three years with the company he has seen no evidence of corruption in its operations.

Pertamina defended its dealings with Petral, saying it regularly reports all oil export and import data to the central bank.

“We are tired of being labeled the oil and gas mafia,” said Pertamina spokesman Ali Mundakir at an energy seminar on Tuesday, referring both to the parent company and the unit.

“I’m really looking forward to what will be done next because controlling the fuel supply is not as simple as [the government] thinks.”

Company officials have warned that moving Pertamina’s oil trading business to Indonesia could hurt the company’s access to trade financing and expose it to higher corporate tax rates.

Petral’s Singapore trading business currently has $5.1 billion worth of trade financing from 18 international banks and is subject to a corporate income tax of only 5 percent.

“The profile we have built up for the last 22 years… is not easy to get. It’s not easy to get the $5 billion [credit] facility,” said Panjaitan.

Singapore trading sources who deal with Petral, however, said Asia’s top gasoline importer would likely have no problems obtaining credit, even with a relocation of operations.

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