Indonesia may disband or relocate state oil trader in corruption crackdown

[JAKARTA] Indonesia may force state giant Pertamina to disband its Singapore trading unit or relocate it to bring more transparency to operations that supply the country with one-third of its daily oil needs, said a member of the government's energy reform team.

Even before he took office in October, President Joko Widodo had broached the subject of halting the trading activities of Pertamina Energy Trading Limited (Petral) to crack down on corruption. But it was the first time a member of his government had raised the possibility of disbanding the Hong Kong-based company, which carries out most of its trades in Singapore.

Widodo launched an overhaul of Indonesia's giant oil and gas sector last week, sacking the board of Pertamina and promising action on Petral, including an audit. "The solutions are only two: we disband (Petral) or relocate it to Jakarta so that it can answer to the many questions about its transparency," Djoko Siswanto, a member of the energy reform team and director of gas for Indonesia's downstream regulator, told Reuters late on Tuesday.

Critics say disbanding the company would seriously disrupt the flow of oil supplies to Southeast Asia's largest economy, which is expected to become the world's largest gasoline importer by 2018. Indonesia imports around 500,000 barrels of the estimated 1.5 million barrels of oil products it consumes each day.

State Enterprises Minister Rini Soemarno said last week she was considering relocating the Singapore trading business of Petral, but wanted to first hear from the newly-formed oil reform team.

The 13-member team, consisting of academics, anti-graft fighters and government officials, was created last month to recommend specific policies to clean up Petral, Pertamina and the rest of the energy industry.

The lack of transparency in Petral's activities has raised concerns that its transactions can be manipulated by what Widodo has called an "oil and gas mafia". Presidential adviser Ari Soemarno, a former head of Pertamina and brother of the state enterprises minister, says the mafia steals up to US$400 million a year from oil imports handled by Pertamina or Petral.

Petral's Singapore trading business currently has US$5.1 billion worth of trade financing from 18 international banks and is subject to a corporate income tax of only 5 per cent.

REUTERS