Another shake-up in Pertamina
The Jakarta Post
Jakarta, posted: Fri, August 31, 2018 | 07:55 am
However we see it, there is something fundamentally amiss in the government’s decision on Tuesday to shake up, for the fifth time in three-and-a-half years, the top management of state oil company Pertamina, which has virtually monopolized fuel distribution and in 2021 will become Indonesia’s largest oil and gas producer.
The government’s explanation that the management changes had been made transparently and with the highest standards of good governance, going through three steps of assessment, and that the candidates had been selected from a pool of the best managerial talents, does not help remove suspicions that Pertamina’s board of directors has always been vulnerable to the short-term political interests of the incumbent government.
The government said Nicke Widiyawati, the acting CEO since April to replace Elia Massa Malik, was confirmed to be the new CEO due to her rich experience in handling big development projects and her ability to reform management. Yet, Nicke could still be vulnerable to the government’s short-term political interests if her tasks as CEO are not wholly tied to the long-term goals of developing Pertamina into a competitive oil and gas company, and are also infused with the social mission to implement the government’s social safety net programs.
Judging from the business plan set for the new board of directors — cutting oil and gas imports and implementing long-delayed oil refinery projects, which are steep uphill tasks — Nicke should be given at least a full five-year term and should not be burdened with poorly defined public service obligations. She should be assessed on Pertamina’s performance as a corporate entity, not as a commercial and social entity.
The blunt fact is that Indonesia has now depended on imports for almost 60 percent of its daily oil needs of 1.6 million barrels a day (bopd), while the capacities of domestic refineries, all owned by Pertamina, are only around 1 million bopd. Still worse, the actual operating capacity of the refineries has averaged only 850,000 bopd. Oil production has virtually been stagnant at around 850,000 bopd due to a steady decline in investment in explorations as major oil companies have considered Indonesia among the least attractive places for investment.
The shortest way of cutting imports will be by buying up all the shares of mining contractors for domestic refining. But its impact on the bulging current account deficit, currently the main driver of the rupiah’s depreciation, would likely be small because companies will demand payment in US dollars. Moreover, the capacity of domestic refineries may not be adequate to take up additional crude oil supplies.
Worse still, Pertamina’s ambitious plans to upgrade its four refineries and build two new plants to double the total refining capacity to 2 million bopd in joint ventures with Saudi and Russian investors have suffered long delays and even outright cancelation for various reasons, notably funding and regulatory barriers.
Hence, all in all, unless the oil investment climate is significantly improved, the new Pertamina CEO is tasked with a “mission impossible”.