A Game of Musical Chairs


It might seem hard to imagine, but from the 1960's to 70's, Pertamina was considered one of the best run national oil companies in the world. In fact, Malaysia's Petronas was modelled and structured around Pertamina, including its pioneering use of Production Sharing Contracts (PSC) that characterise many oil producing countries today. However in 2018, that statement seems rather distant now. Because just last week, the Indonesian government stepped in once again to terminate President Director and CEO Elia Massa Manik, who barely served a single year at the helm of the state oil giant.

Ostensibly, the reason why Manik, along with four other directors , was sacked was due to a recent oil spill in Balikpapan, and for the shortage of subsidised gasoline across the archipelago. Also removed were Marketing Director - Muchamad Iskandar, Processing Director - Toharso, Asset Management Director - Dwi Wahyu Daryoto and Petrochemical and Processing Megaproject Director - Ardhy N. Mokobombang. Nicke Widyawati, Pertamina's human resources director, will now be the acting chief executive, while Budi Santoso Syarif will serve as the new Processing Director, Basuki Trikora Putra as Corporate Marketing Director, Masud Hamid as Retail Marketing Director, Haryo Junianto as Asset Management Director, Heru Setiawan as Petrochemical and Processing Megaproject director and Gandhi Sriwidjojo as Infrastructure Director.

This continues from a dangerous trend that began last year, when CEO Dwi Soetjipto and Deputy CEO Ahmad Bambang were removed for ‘leadership issues' (read more here http://bit.ly/2HQTNRE). Manik was appointed as the new CEO in 2017 in the aftermath, and now has departed.

This development comes as Indonesia's self-sufficiency for energy worsens. One of the positions dismissed was the Petrochemical and Processing Megaproject Director. Since the 2000's, Indonesia has been running a severe (and growing) deficit of fuel products, with refineries that desperately need upgrading. Much vaunted collaborations with Saudi Aramco, NIOC and Rosneft have been announced, but to date, none of the promised new mega-refineries have emerged. In a perfect world, Pertamina would be able to fund new refineries by themselves, but in Indonesia's world of subsidised fuels, Pertamina took a US$2.4 billion loss last year in fuel retailing due to market distortions. Two weeks ago, the Indonesian government handed eight upstream blocks whose exploration rights were expiring to Pertamina as ‘compensation' for continued fuel retail losses, which is a blow of confidence to upstream investors that were only recently enticed back to consider Indonesia after the country finally made positive changes to its Production Sharing model.

The problem here is evident. Indonesia cannot expect to maintain its costly fuels subsidy program by patching up holes and initiating continuous management restructuring programs. It always seems that the government takes one step forward (the upstream revenue sharing overhaul) then undoes all the good by taking two steps back (management instability is seen as a major sign of risk by investors). We wish good luck to the new CEO of Pertamina, who has many huge expectations to live up to, some of which look very challenging. Hopefully for Indonesia's sake, his days are not numbered too.  

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