Too Much Intervention Could Affect Pertamina’s Long Term Projects

Acting CEO of Pertamina Nicke Widyawati - Photo by SOEs Ministry

JAKARTA (TheInsiderStories)—Too much government intervention in the changing Pertamina’s board of directors potentially cause crucial projects delays and disrupt long term plans of the state-controlled energy company.

The government’s sudden move to oust the President Director of state-owned oil company PT Pertamina Elia Massa Manik, following the oil spill scandal in Balikpapan, East Kalimantan and the scarcity of Premium gasoline in some parts of the nation, could harm the company.

Manik was serving only a year and a month, the shortest president director after Ariffi Nawawi who served from 17 September 2003 to 11 August 2004.

The government also sacked the four other directors namely Marketing Director Muchamad Iskandar, petrochemical and processing megaproject director Ardhy N. Mokobombang, asset management director Dwi Wahyu Daryoto, and processing director Toharso.

Subsequently, State-Owned Enterprises Minister Rini Soemarno appointed the Pertamina Human Resources Director Nicke Widyawati as the acting president director. The government also appointed Basuki Trikora Putra as corporate marketing director, Haryo Junianto as asset management director, Heru Setiawan as petrochemical and processing megaproject director and Gandhi Sriwidjojo as infrastructure director, Budi Santoso Syarif as the new processing director, Masud Hamid as retail marketing director.

This is not the first time the government overhauled the Pertamina’s board director. During the last 15 years, there are nine times of changes in Pertamina’s board director. In the last three years as SOEs Minister, Soemarno has replaced twice the President Director and several times overhauled the directors.

The changes are very short compared to the original term of service of SOEs directors according to the law No. 19/2003. Based on the law, the government pointed the SOEs directors for a five-year term.

The frequent changes in the Pertamina’s directors potentially affect Pertamina’s crucial projects. It will affect the company’s long-term business roadmap due to adjusting in the new directors’ direction.

There are at least three big unfinished projects left by the former president directors namely the oil and gas holding, the operatorship in the eight terminated blocks, and the refinery projects.

Indonesia’s Minister for State-Owned Enterprises on Wednesday (04/11) signed an approval letter over the transfer of a 56.96 percent stake in state gas distributor PT Perusahaan Gas Negara to state energy company PT Pertamina. This signer means the oil and gas holding is officially established.

After the oil and gas holding established, Government overhauled the Pertamina’s directors and left behind some next steps after the establishment. These steps potentially face delays due to waiting for the new definitive president director.

The most crucial step that potentially delayed is the integration of Pertamina and PGN’s capital structure. This integration is expected to enlarge the investment capacity of the two companies.

The further step including the business integration especially in the gas business to minimalize the competition. As a result, the two companies will expand to the eastern part of Indonesia.

In the eight terminated blocks that taken over by Pertamina, the company needs to allocate at least US$556.45 million on these blocks. The eight blocks namely North Sumatra Offshore block, Ogan Komering block, Southeast Sumatra block, Tuban block, East Kalimantan block, Attaka block, Tengah block, and Sanga-sanga block.

From this eight blocks, Pertamina and The Upstream Oil and Gas Regulatory Special Task Force already signed the contracts of the seven of eight terminated blocks.

The changing in the Pertamina’s directors could affect the process of operatorship transfer. Moreover, the seven blocks already in the mature condition where the production potentially drop in the near future.

In the refinery project, Pertamina has two main projects of the refinery development master plan (RDMP) and new grass root refinery (NGRR). The RDMP projects, Pertamina plans to upgrade four of its existing refinery facilities, namely the Cilacap, Central Java; Balongan, West Java; Dumai, Riau; and Balikpapan, East Kalimantan.

RDMP project expected to increase the existing refinery capacity of 820,000 barrel per day (bpd) to 1.61 million bpd. Each refinery needs at least US$5 billions of investment.

The RDMP projects already delay from the initial target. Acording to the Pertamian data, The Balikpapan project initially has target finished by 2019, but it will delay to the 2019 for the first phase and 2021 for the second phase.

The Cilacap project which should be finish by 2022, delay to 2023 or 2024. The Balongan project could be a delay to 2021. In addition, the company targets the NGRR project in Bontang will be finished by 2023 with the investment of US$8 billion.

Too much government meddling in the changing Pertamina’s directors potentially causes more delay on refinery projects. The refinery projects are very important for the Indonesia who currently imported half of the total fuel demand of 1.6-1.7 million bpd.