Pushing Pertamina to become world class company

>> Tuesday, February 10, 2009

From: Joi Surya Dharma (IDN/PCOSB)
To: enemba2007@yahoogroups.com ; indoenergy@yahoogroups.com ; kuyaog@yahoogroups.com ; migas_indonesia@yahoogroups.com ; meti_ires@yahoogroups.com ; ia-itb@yahoogroups.com ; iaitbjakarta@yahoogroups.com ; medcoenergi@yahoogroups.com
Sent: Tuesday, February 10, 2009 5:13 PM
Subject: [IA-ITB] Pushing Pertamina to become world class company

Artikel menarik oleh Supramu Santosa, mengenai Pertamina terutama opininya setelah pergantian Presdir-nya.
Semoga program transformasi Pertamina menjadi world class company dapat tercapai sesuai rencana.

Pushing Pertamina to become world class company
by: Supramu Santosa

Pertamina has a new leader. Arie Sumarno has been replaced after three years of service, which is a bit longer compared to those of his predecessors, Widia Purnama (two years), Ariffi Nawawi (one year) and Baihaki Hakim (three years). Pertamina has often experienced changes in leadership. As a mater of fact, repeated change of leadership is counter-productive for the growth of such a big company as Pertamina if it is expected to carry out changes. Continuity is a necessity. A Pertamina new leader willing make comprehensive and substantial changes which are needed for Pertamina to grow and develop into a world-class company needs four to five years to define vision and build a strategy to achieve it.

A new corporate leader needs to deeply study problems faced by the company before making changes and defining a new corporate strategy. As far as a big and complex company such as Pertamina is concerned, a new leader needs at least six months to see, study and understand its problems, strength, weaknesses and opportunities (conducting a kind of SWOT analysis). After that, the leader needs another one year to formulate vision, strategy and comprehensive planning. It needs another year to socialize the vision, strategy and comprehensive planning to all parts of Pertamina’s organization. Thus, two or three years length of time will be spent for the works to devise strategy, planning and socialize them. The remaining two years will be spent to carry out a full-scale implementation of the new corporate strategy. Thus, Pertamina’s board of directors should be given an ample time if they are expected to make comprehensive and substantial changes that are needed to develop Pertamina into “a flagship of Indonesia.” This does not mean that the board of directors would not be able to make changes and do efficiency during the planning period. Such changes, however, are not total and comprehensive in nature.

Pertamina has almost everything needed to become a world leading oil and gas company. Pertamina has upstream assets -- exploration and production assets -- with enormous potentials. Quite a number of international oil and gas companies have been approaching Pertamina for cooperation in view of the potentials. Pertamina’s exploitation and production areas still have a low rate of recovery and thus have potentials to be optimized. The production rate of Pertamina’s exploitation fields could be increased using state-of-the art oil and gas technology. If the exploration is carried out extensively and the exploitation of fields is optimized, the upstream operation will create tremendous value for Pertamina.

Pertamina also has downstream assets – refineries and distribution network – which are spread across Indonesia, something which new downstream newcomers in Indonesia such as Shell and Petronas lack. Imagine how much are the investment and time needed by big companies such as Shell, Petronas and Exxon to build an expansive network such as the one owned by Pertamina. Indeed, the oil and gas law has allowed a free competition in oil and gas downstream sector. Yet, Pertamina has been far ahead of its competitors. Although Pertamina has been given by the government a “social mission” of distributing fuel across the country, the downstream business will still be able to contribute a lot to its growth if it is well and efficiently managed.

In terms of human resources, Pertamina has a workforce which is experienced in all sectors. Many people are skeptical about Pertamina’s workforce. Thanks to a long interaction with Pertamina, the writer knows well that Pertamina has a lot of talented, resourceful and professional workers. What is needed is the creation of working environment and cultural changes where Pertamina’s human resources can work professionally and do their best. Cultural change should be part of Pertamina’s new corporate strategy. If anything, the cultural change is as important as other changes of business strategy. The new culture should make all Pertamina workers have a strong commitment towards corporate culture and strategy. The new culture should also instill pride and sense of belonging into all Pertamina workers. This is a hard but very important task of Pertamina’s new leader.

Pertamina is a big and complex company mired in political interests. Thereby, a Pertamina leader should have a strong leadership and personality, a broad perspective and experience and a long-distance vision and a high entrepreneurship. A broad knowledge about oil and gas is an advantage, but not a must.

Thanks to all the strength, under a competent and professional management, Pertamina must and will be able to develop itself into a world well-respected oil and gas company as long as the government gives it a chance and encourages it to grow.

Give Pertamina a chance to invest in upstream and downstream sectors. With such big assets and potentials, Pertamina will face no difficulties to raise funds for development, either through cooperation with strategic partners or other types of funding.

Also needed is a political will of all concerned parties, particularly political powers, to support, encourage and give chances for Pertamina to healthily grow. Give Pertamina’s management a freedom to make policies and decisions like other world oil and gas companies without much intervention from political decisions. Let Pertamina be tightly supervised by a competent Board of Commissioners, state comptroller (BPKP) and independent auditors rather than the House of Representatives (DPR) and the Cabinet. Thus far, Pertamina’s leaders have been forced to spend too much time to prepare for and attend meetings with the DPR and the government. There has been too much political intervention in Pertamina’s policies, sometimes related to small things such service and goods provision. Such activities take time that Pertamina’s leaders have not much time left to think about and conduct strategic works that need high concentration.

Indeed, Pertamina has a task of supplying and distributing fuels across the country, whose prices are determined by the government and partly subsidized. The price and subsidy, which are the products of political decisions, should not hurt Pertamina’s balance sheet and Pertamina should be allowed to get economic benefits from the activity. A profit for Pertamina is in the end a profit for the government as the shareholder, isn’t it? Domestic fuel distribution remains the most sensitive issue and, as it turns out, this activity determines how the government and the public judge the whole performance of Pertamina. Because of it, Pertamina’s management should place a reliable system and team with a continuous monitoring. Don’t ever allow delays in fuel and LPG supplies to occur! With a good system and monitoring, this is certainly not difficult to do. Pertamina will face fewer criticisms if it is able to perform the task of fulfilling fuel demands. This, in turn, will enable the management to concentrate on business expansion.

We all hope Pertamina can develop itself better than Petronas and compete with other multinational companies. Thus, give Pertamina a freedom to act like other oil and gas companies! Give Pertamina’s leaders enough authority and time to carry out its vision, of course under an effective and close supervision from a professional board of commissioners! To the new leader of Pertamina, keep up the good work!

Note: The writer is an oil and gas executive; observer of oil, gas and energy; and the former Vice President of Indonesia Petroleum Association.

Kind Regards,
Joi Surya Dharma

E&P Strategy Unit (EPSU)
PETRONAS, Tower 1 Level 11
Mobile: +60143253817

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