The Dissolution of Petral
By Mirza A. Karim, Karen Mills & Margaret Rose
Posted: 2nd July 2015 09:32
Indonesia's state-owned oil and gas company, PT. Pertamina (“Pertamina”) has officially halted the operation of its Singapore-based subsidiariy, Pertamina Energy Trading Limited ("Petral"), and is currently working on efforts to liquidate Petral’s subsidiaries, Pertamina Energy Services Pte Limited (“PES”) and Zambesi Investments Limited (“ZIL”). The announcement was made by the President Director of Pertamina, Dwi Soetjipto, accompanied by the President Commissioner of Pertamina, Tanri Abeng, Minister of State Owned Companies, Rini Soemarno, and Minister of Energy and Mineral Resources, Sudirman Said, at the Ministry of State Owned Companies offices on 13 May 2015. Petral currently handles imports of crude oil and fuel oil for Pertamina, however this role has been deemed no longer significant in Pertamina’s business processes. There have been calls to liquidate Petral for a number of years, but the process was continually stalled for one reason or another.
Pertamina was established in 1968 as a merger of the then three state oil companies: Pertamin, Permina and Permigan. Its President Director, a close “crony” of Suharto, Ibnu Soetowo, became rather infamous in subsequent years through his various dealings (books have been written about these), which were understood to be as much on behalf of Suharto as himself. One of Soetowo’s projects was Petral. As early as 1968, Pertamina joined with a number of US investors to form what was known as the Perta Group to perform marketing activities for Pertamina’s oil and gasproducts in the United States. The Perta Group began such activities in 1972.
The Perta Group structure consisted of: Perta Oil Marketing Limited (established in the Bahamas and based in Wanchai, Hongkong) and Perta Oil Marketing Corporation (established in California and operating in the US). In 1978 there was a major reorganisation whereby the Bahamas company was replaced by Perta Oil Marketing Limited (a Hong Kong company). The Perta Group continued to stand between Pertamina and its offshore suppliers and customers for the duration of Suharto’s rule and later, as Petral, until today.
The Perta Group was established in the “New Order” era, under the virtual dictatorship of Suharto, with minority interests held by Suharto’s youngest son, Hutomo Mandala Putra, known as “Tommy Suharto”, and an unoffical business partner, Bob Hasan. It was, and for the most part still is, suspected that these latter held their interests not only on their own behalf but also on behalf of an “oil mafia” of various current and former officials and businesspersons, reportedly including the most recent past President, who had been a Minister of Energy during the relevant time. The rumors have it that more than half of the oil imported into Indonesia was controlled by a certain “Gasoline Godfather” operating out of Singapore, connected with and, of course, benefitting, this “oil mafia”. Unsurprisingly, seeing the breadth and power of those involved, no investigation had ever been undertaken into these seemingly shady practices, despite the monumental losses to the state they represented.
In1998, when Suharto had stepped down, Pertamina took over control of the Perta Group, but both Tommy Suharto and Bob Hasan retained their unofficial interests.
In2001, the Perta Group became known as Pertamina Energy Trading Limited (Petral), and was incorporated in Hong Kong, maintaining its head office in Singapore. (For ease of reference the term “Petral” shall hereinafter be applied to refer both to the Perta Group and to the later legal entity, Petral.)
Petral has two wholly owned subsidiaries:
Pertamina Energy Services Pte Limited (PES), formerly Perta Oil Services Pte Ltd, established in Singapore in1992. PES’s role is to perform trade activities of oil, oil products, and petro-chemicals; and
Zambesi Investments Limited (ZIL), established in Hongkong in1979. ZIL’s role is to perform non-oil business development and investment.
At the time of the establishment of Petral,Indonesia was a net oil exporter and a member of OPEC, and Petral was positioned by Pertamina as its international trading and marketing arm. Crude oil’s role was still dominant as either or both a source of foreign exchange revenue and/or state’s revenue in the State Bugdet. The establishment of Petral was made in line with Pertamina’s policy which desired to increase trading and marketing functions. Petral’s main business was crude oil exports and imports and refinery products. Petral also performed trading activities of oil and derivative products originating from other countries. Petral’s main market was in the Asia Pacific but also included Europe, the Middle East, Africa, and other regions. However, the decrease in oil production along with the rapid increase of oil consumption in2003 created more demand, which needed to be covered by oil imports. Changes in Indonesia’s status from net exporter to net importer did not alter Petral’s role. Petral remained the trading arm of Pertamina with an additional function, as crude oil and fuel oil “procurement agent”, providing great opportunity for enrichment of any unscrupulous players involved.
Naturally, considering Indonesia’s high demand for fuel oil and Petral's role as the sole authorised seller and purchaser of crude and fuel oil, Petral’s business volume increased exponentially. However, Petral acted only as a “tender administrator”, without performing any actual transaction with third parties. Therefore it cannot be characterised as a trading company. Nor could Petral perform any transaction at the Platts Window Market (Singapore Oil Exchange), since Petral did not physically possess any product. But Petral set both buying and selling prices, standing in between, with no transparency or accoutability.
According to the former chairman of the now dissolved Oil and Gas Governance Reform Team (RTKM), Faisal Basri, one of the aberrations performed by Petral was the manipulation of the oil supply through oil companies owned by foreign governmentsor National Oil Companies (NOCs). According to Basri, many of the NOCssuccessful as winning bidders did not possess their own oil and needed to acquire the supply from other parties. The Minister ofEnergy and Mineral Resources, Sudirman Said, has also revealed missappropriation by Petral inSingapore, through the existence of suspicious cartel practice in one of Pertamina’s subsidiaries. This suspicion is one of the anomalies that had been analysed by the Oil and Gas Governance Reform Team (RTKM). Sudiman also indicated a number of other unclear practices in Petral's fuel oil procurement process, controversey over which has indicated the existence of the “oil mafia” seeking personal profits from the fuel oil imports.
These aberrations could only occur through Petral's role as Pertamina's trading arm, while it was authorised only to act as oil importer.
Based on these abberations, on 13 May 2015, Pertamina officialy terminated all operations of Petral and its subsidiaries, Pertamina Energy Services Pte Limited and Zambesi Investments Limited, and announced that Petral and these subsidiaries are slated to be liquidated by April 2016 at the latest. Pertamina noted that the need for Petral has been the subject of debate in the domestic energy sector for some time and it was increasingly clear that Petral’s role was no longer a significant factor in Pertamina’s business processes. This current move has finally been made as a part of the efforts to clean up the country’s graft-tainted oil sector. The current President Director of Pertamina, Dwi Soetjipto, stated that Petral’s business activities, especially those related to crude oil and fuel oil imports and refinery products shall now be fully performed by Pertamina’s own Integrated Supply Chain (ISC), and in fact much has already been performed gradually by ISC since early this year. Petral’s assets shall also be transfered to Pertamina. Minister ofEnergy and Mineral Resources, Sudirman Said, has reported to Indonesia's new President, Joko Widodo, that Pertamina has already managed to save US $22,000,000 over the past three months, since ISC took over Petral’s business activities, indicating the likelihood of missappropriation by Petral. Prior to Petral's liquidation, Pertamina intends to perform diligent financial audit and legal due dilligence to examine Petral’s business track record. The Ministry of Energy and Mineral Resources has also indicated its intention to perform a full audit investigation over Petral. However, since Petral is a Hong Kong legal entity, based in Singapore, Indonesia’s government may find some difficulty in performing such investigations, particularly as these ought rightly to involve Indonesia's Supreme Audit Agency (“BPK”).
By the dissolution of Petral, Pertamina through its own ISC can fully handle crude oil and fuel oil imports and refinery products, without the necessary of using an agent. This will eliminate the payment of any agency fee, while prices can be bargained directly between Pertamina and the supplier. Efforts to clean up Pertamina, Indonesia’s largest state owned entity, have been ongoing ever since Ibnu Soetowo almost bankrupted the nation through questionable financing transactions in 1978. It has been 17 years since Suharto stepped down and, although it appears that Pertamina itself is now operating in a transparent manner, it is only now that her subsidiaries are receiving the scrutiny they clearly deserve. A fully transparent oil and gas industry will certainly spell not only a welcome increase in state revenue, but also a more attractive energy sector for investors: domestic and foreign alike.