November 28, 2014 / 11:55 AM / 5 years ago

UPDATE 1-Indonesia overhauls oil giant Pertamina, moves to clean up sector

* Pertamina gets new head, board to be replaced

* Board dismissed to make Pertamina transparent -enterprises minister (Releads, new throughout)

By Fergus Jensen and Wilda Asmarini

JAKARTA, Nov 28 (Reuters) - Indonesia’s new government took its first steps to clean up a graft-tainted oil and gas industry on Friday, overhauling the management of state giant Pertamina and pledging major reforms of the company’s energy trading division.

Indonesia is looking to restore investor confidence in Southeast Asia’s biggest crude producer after a series of corruption scandals led to the downfall of top oil officials under former president Susilo Bambang Yudhoyono.

Indonesia’s new president, Joko Widodo, and the country’s main anti-graft watchdog, the Corruption Eradication Commission (KPK), are separately making moves to get rid of the so-called “oil and gas mafia”, which has profited from the country’s decaying industry.

Widodo, who took office a month ago, has been swift to move industry outsiders into top energy jobs.

On Friday, the president director of cement firm PT Semen Indonesia, Dwi Soetjipto, was appointed to be the new head of Pertamina.

“We will immediately carry out the president’s direction to seriously clean up Pertamina,” Soetjipto told reporters after his new position was announced, adding that he welcomed investigations by the KPK and other agencies.

“As long as we have integrity, we don’t need to be worried about (the investigations),” he said.

Soetjipto’s first job will be to appoint new Pertamina board members after State Enterprises Minister Rini Soemarno announced the dismissal of all board directors.

“We want to speed up efforts to make Pertamina transparent - to make it into a world-class company - so today it was decided to dismiss all directors of Pertamina and appoint new directors,” Soemarno told reporters.

Pertamina has struggled with declining crude production and insufficient gas infrastructure, which has forced former OPEC member Indonesia to import more and more foreign oil.

Pertamina, which reported a 20 percent drop in income to $1.15 billion for the first half of 2014 compared to the same period last year, has been aggressively acquiring energy assets both at home and abroad to offset its declining output.

Over the next five years, Pertamina plans to spend $61 billion, 83 percent of which will be on upstream development including mergers and acquisitions.

“It’s good to choose (Soetjipto) as Pertamina CEO because he hasn’t been contaminated by the oil and gas mafia,” said Fahmi Radhy, a member of the oil ministry’s reform team.

The so-called “mafia” is believed to steal vast amounts of money in the trading of crude and oil products into Indonesia, Ari Soemarno, a presidential energy adviser and former Pertamina chief, told Reuters.

Widodo has launched an audit of Pertamina’s trading arm, Petral, which has been hit with widespread allegations of corruption.

State Enterprises Minister Soemarno said she was considering relocating Petral’s headquarters to Indonesia from Hong Kong. (Writing by Randy Fabi; Editing by Tom Hogue)

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