The Attorney General’s Office (AGO) arrested Pertamina’s former president director, Karen Galaila Agustiawan, on Monday for her alleged involvement in a graft case relating to the company’s investment in Australia’s Basker Manta Gummy (BMG) block in 2009. The case had caused Rp 568 billion (US$38 billion at the current rate) in state losses, according to the AGO, which named Karen a suspect last April. 

Pertamina’s investment did not run as expected because the BMG block was only able to produce 252 barrels of oil per day (bpd), far lower than the estimated 812 bpd. It was finally shut down after being found economically unviable. 

The AGO also accused Karen of violating investment procedures, such as approving the acquisition deal without a due diligence audit and without approval from Pertamina’s board of commissioners. 

Yet, her lawyers said Karen had fulfilled all procedures, such as a due diligence audit including a feasibility study, and had secured approval from the board of commissioners. Moreover, the AGO opened the alleged corruption case despite an audit conducted in 2010 by the Supreme Audit Agency (BPK), which did not find any irregularities in the acquisition of the BMG block.

The government, as the shareholder of the state-owned oil and gas company, had also approved Pertamina’s financial reports that included the BMG investment. Normally, if a company’s financial reports are approved by shareholders, the executive board is freed from any responsibility of losses incurred due to corporate actions during the financial year.

Business failures are part of business risks. If a failure such as the investment made by Pertamina is considered a crime, it will scare investors. Such a legal risk would further hurt the government’s efforts in promoting the role of state-owned companies in the country’s economy. 

The government has encouraged state firms to run businesses more professionally so that they would be able to take advantage of available business opportunities. State-owned companies should be able to generate more profits to enable them to pay higher dividends to plug the state budget deficit. Raising state revenue from state-owned companies’ dividends is one of the goals of President Joko “Jokowi” Widodo’s administration as tax revenues are inadequate to finance the country’s development programs.

Therefore, the prosecution of state companies’ executives without solid legal evidence would not only harm the credibility of those who uphold the law, it would also damage Indonesia’s business confidence. To state-owned firms, the impact of Karen’s arrest will be quite damaging as the executives in charge will avoid making big decisions, fearing wrong business decisions could land them in jail.

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