Only time will tell whether the government is really serious about reforming  Pertamina by giving its new CEO Karen Agustiawan full mandate to run the country’s largest state company.

But it is good to know that Karen herself has pledged from the outset of her tenure she will reject, at any cost, any undue political intervention that could harm the US$28 billion oil firm.

This means the 50-year-old oil mining technology expert could choose to resign from her post rather than succumb to meddling from vested interest groups and rent seekers within the government and political parties.

But that is much easier said than done.

Karen must be as brave and no-nonsense a leader as Finance Minister Sri Mulyani Indrawati, “the Iron Lady” who has launched a big-bang reform to remove leeches from  the customs and taxation offices, long perceived to be one of the most corrupt public institutions in Indonesia.

Political intervention and corruption and collusive practices by rent-seekers who want to make Pertamina their cash cow have always been among the oil company’s biggest enemies, even after the fall of Soeharto’s authoritarian government in May 1998.

In fact, Karen’s appointment last Thursday to abruptly replace Ari Soemarno, who had only been at Pertamina’s helm for less than three years,  was not free from political meddling, as Sofyan Djalil, the minister of state enterprises, himself admitted that Soemarno’s firing had nothing to do with his performance.

Soemarno, the fifth CEO at Pertamina in the past 10 years, had brought about significant improvement in the corruption-riddled domestic and foreign logistics departments of the company’s upstream and downstream oil operations.

But he ran into bad luck.

He incited President Susilo Bambang Yudhoyono’s ire, after temporary shortages, though not pervasive, of liquefied petroleum gas (LPG) and gasoline in several areas over the past few months occurred at a time when long lines of people at gasoline stations were scenes mostly despised by a president facing an election.

Judging from her decades of experiences working at Mobil Oil (now ExxonMobil) and the Halliburton oil service company, Karen seems to possess the basic character of a person able to stand up against undue intervention, even at the cost of her highly rewarding, yet “hot” corporate position.

Her high technical competence and integrity gives her the advantage of being able to forfeit her corporate position, instead of compromising on good corporate governance principles.

Karen rightly listed securing smooth distribution of fuel and LPG and further development of upstream operations as her top priority programs.

Downstream operations, notably domestic fuel marketing, are a piece of cake. Despite the liberalization of the oil industry and market, Pertamina still virtually holds a monopoly over the downstream operations, due to the advantages of the nationwide network of storage, haulage and refining facilities it has developed over the past five decades.

However, as Soemarno’s bitter experiences have shown, fuel distribution is so socially and politically sensitive that it can make or break the career of the Pertamina chief.

The government seemed to pin high hopes on Karen to bolster Pertamina’s upstream operations as the state company remains a small player with a daily output of 150,000 barrels, or just around 15 percent of the national production.

The rationale is that Pertamina’s survival as a commercially viable company depends largely on its upstream operations, because oil refining and distribution generate only very thin profit margins.

However, increasing oil production is not only a highly risky business that needs a lot of investment and high technology, but also has a long payback period because the time lag between exploration and production, if any commercially feasible volume of oil reserves can be discovered, often takes more than five years.

Hence, as higher oil output was set as one of the key parameters to assess Karen’s performance, she and her board of directors should be given a secured term of office at least of five years.

But a secured term of office will not mean much if the cash-strapped government continues squeezing Pertamina by demanding an annual dividend payout of more than 50 percent, as it did over the past few years.

Dividend payouts of more than 30 percent will adversely affect Pertamina’s capacity to finance upstream operations.

Unless there is real commitment by the government to give a full mandate to Karen, then all the talk of transforming Pertamina into an internationally competitive oil company like Malaysia’s state-owned Petronas is only hot air and Karen’s tenure will simply depend on the outcome of the upcoming presidential election.

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