Quo Vadis, Pertamina?
At an extraordinary general meeting of shareholders on Apr. 20, Pertamina again replaced its new president director who had been in the position for only a few months.
At an extraordinary general meeting of shareholders on Apr. 20, Pertamina again replaced its new president director who had been in the position for only a few months.
In the last two years, the government has shuffled the board of directors four times. In addition to replacing the president director, it also overhauled nomenclatures and important posts at Pertamina.
The replacement of the president director, who acts as the commander of the oil and company, certainly indicates an abnormal situation. The phenomenon signaled that Pertamina was not healthy.
Pertamina does not have a policy road map that for consistent reference. This situation is surely dangerous, because the people still rely on Pertamina to meet their energy needs. Pertamina has even prepared Government Regulation No. 6/2018) to establish a holding company for state oil and gas companies.
Government and Pertamina
The replacement of a company’s directors can be interpreted to mean that the former directors were unable to meet the government’s expectations, because Pertamina’s shareholder is the government through the State-Owned Enterprises (SOE) Ministry. It can be concluded that the government indeed desired that the directors be replaced.
Replacing important elements of a company too often and within a short period of time may indicate that the company is in trouble. The possible cause is that the government has not been professional and selective enough in choosing the directors or vice-versa, or that the government is imposing its will but the board of directors cannot fulfill it.
Various reasons have been presented, such as the scarcity of Premium fuel and the damaged submarine pipelines in Balikpapan. If examined further, these are not strong enough reasons for removing the Pertamina president director. A kind of coercion may occur because the government’s domination as the sole shareholder has the potential to be misused in determining the Pertamina management.
From the New Order to the beginning of the Reform Era, Pertamina was a closed company and the cash cow of those in power.
However, since Pertamina has been transformed into a limited liability company (PT), it must implement good corporate governance (GCG) and comply with the Law on PT and SOE (BUMN) at the same time.
Regulations on GCG is not separate from the principle of good governance (GG). These two principles (GCG and GG) must be synergistic, integrated and complementary in the activities of a state company.
In implementing the two principles, maintaining the old paradigms, such as abusing Pertamina as a source of political financing and the practices of corruption, collusion and nepotism (KKN), will become difficult and automatically be rejected by the corporate system.
The public’s question is, where is Pertamina headed? The tragic stories of the past involving Pertamina have led to suspicions that Pertamina will be again turned into a closed and corrupt company, because it currently plays a strategic position as an engine of the national economy as well as an agent of development, especially as the main provider of energy to meet public needs.
Pertamina currently contributes about 24 percent of total national oil and gas production. The oil and gas sector plays an important role in raising non-tax revenues (PNBP), with about 50 percent of the total Rp 260 trillion PNBP in the 2017 Revised State Budget derived from the Energy and Mineral Resources Ministry (ESDM), or Rp 132 trillion, and oil and gas contributing 88.6 percent of this figure.
Therefore, overhauling Pertamina’s board of directors and regulatory rules must be carried out carefully and transparently to ensure that they will not affect its productivity, which may cause losses to the state.
There are at least three important factors in the foundation for change. First, every change must be taken to make Pertamina stronger and more solid in meeting the government’s goal, such as in implementing the national energy policy as mandated by the Constitution. Second, every change must be transparent and should drive performance in the long term and be accountable to all the people of Indonesia. Third, to ensure that the change will not turn Pertamina into a target of political interests that seek financing, the government must be very careful in selecting the members of Pertamina’s board of directors and commissioners, so hidden agendas will not infiltrate the company.
Energy sovereignty
In the middle of the chaotic management situation, it would be better to remember what Pertamina really is. Understanding Pertamina cannot just look at its present identity as a glamorous, expansive and world-class company. However, we should also look at Pertamina’s history and identity as a special company.
Pertamina\'s success as a company is not only measured by its ability to generate revenue, but also its role in minimizing social inequality across all parts of the country. Naturally, Pertamina has grown into a large company because its business is strategic and protected. It must be remembered that Pertamina\'s existence is related closely to the vision of realizing energy sovereignty and resilience.
Pertamina is not an ordinary business entity, because it is tasked with realize the government’s mission of realizing the just and fair distribution of oil and gas for all people. As its business concerns vital commodities, the state plays an important role both directly and indirectly in Pertamina’s activities to ensure the achievement of social justice for all people.
If the indicator were merely commercial, Pertamina went bankrupt a long time ago. Pertamina did not suddenly grow to become as big as it is now, but has undergone painful ups and downs. With every fall, the state was always there to help it, and it was the people who had to bear the cost. So, there is no reason to be too proud of the figures while forgetting its history.
History shows that damage to Pertamina frequently started from within, due to managerial weakness and power intervention. Therefore, any change in Pertamina that may lead to a shift in the state philosophy for managing oil and gas must be prevented. Pertamina must be run by professionals with integrity, honesty and understanding of its identity.
Pertamina\'s identity is based on the mandate under Article 33 of the 1945 Constitution, which determines oil and gas as a strategic natural resource that is directly under state control. Formerly, oil and gas could only be managed by state companies, and for which Pertamina was established. In order to realize the Constitution\'s mission, Oil and Gas Law No. 44/1960 was issued and subsequently followed by the issuance of Pertamina Law No. 8/1971, which established Pertamina as an integrated national oil company (NOC), the sole player in the industry that controlled the upstream and downstream as well the held state rights over oil and gas. The role lasted until the Asian economic crisis in 1998 that gave birth to the reform movement.
Reformation changed the country\'s orientation in managing oil and gas from social collectivism to economic liberalism. After the issuance of the Oil and Gas Law No. 22/ 2001, state power over oil and gas was taken from Pertamina and transferred to the government. Furthermore, Pertamina was reformed into a state-owned company and from then on, oil and gas were positioned as ordinary trading commodities subject to the market mechanism. Pertamina is no longer a regulator or supervisor. These functions were transferred to the Oil and Gas Regulatory Agency/Special Working Unit (BP/SKK Migas).
Today, Pertamina is a regular business entity that is free to compete in the upstream and downstream, both inside and outside the country. Adapting to the changes in its business role, Pertamina\'s vision was also changed to "Becoming a World-Class National Energy Company". Nevertheless, Pertamina still bears the special duty of public service obligation (PSO) under Presidential Decree No. 191/2014 and Energy and Mineral Resources Ministry Regulation No. 36/2016 to accelerate the establishment of a single price for certain types of fuel (BBM), and should undertake all projects in all domestic territories. Pertamina will soon become a holding company for all oil and gas companies.
Power intervention
Pertamina operates in both the upstream and downstream in the oil and gas business. In the upstream sector, Pertamina is involved in exploration and production, both inside and outside the country, while in the downstream business, Pertamina is practically the sole player in fuel distribution. In fact, Indonesia has become a net oil importer, because domestic production is no longer enough to meet the rising fuel demand. The large annual imports are prone to corruption.
Due to its strategic position, anyone could try and control Pertamina for their own profit by using their influence and if necessary, intervene in Pertamina’s business decisions. The practical way is to install their people among Pertamina’s executives. As Pertamina is an SOE, effective intervention is made through the government, political parties, the legislature and other powers. This political intervention is the most dangerous, because it inflicts massive losses to the state. So attending carefully to Pertamina is important to enable it to become a big, strong and profitable state entity.
Pertamina should be given the professional freedom to manage its activities on the local and global stage to meet the country’s oil and gas needs. The state must fortify Pertamina from any form of intervention that might disrupt the company\'s independence and productivity, because such intervention would be tantamount to betraying the people.
Junaidi Albab Setiawan, Advocate and Observer of Oil and Gas Law