March 17, 2017 3:40 am JST

Power struggle at Pertamina bodes ill for Widodo's reforms

Indonesian president caves in to calls for an insider CEO

JUN SUZUKI and WATARU SUZUKI, Nikkei staff writers

JAKARTA -- Indonesia's Pertamina has picked an industry insider as its new chief despite President Joko Widodo's push for an outside appointee, raising doubts about the effectiveness of his campaign to reform the country's state-run enterprises and energy sector.

Elia Massa Manik was named president director and CEO of Pertamina on Thursday. He told reporters he will advance reforms at Indonesia's largest state-run oil company. A graduate of the prestigious Bandung Institute of Technology, he has held a number of roles, including business development manager at the food company Indofood Sukses Makmur.

Manik served as president director of Elnusa, a Pertamina subsidiary, from 2011 to 2014. He then became president director of the state-run agricultural company Perkebunan Nusantara III. "He was chosen for his success at improving the performance of these businesses," said an official from the Ministry of State-Owned Enterprises.

Former Pertamina chief Dwi Soetjipto was fired on Feb. 3 over leadership problems. A replacement was supposed to be named within 30 days, but conflicting interests among different ministries and politicians made the process extremely difficult.

The choice at one point was narrowed down to three candidates, mostly from within Pertamina, toward the end of February. But Widodo was strongly pushing for someone without ties inside the company.

Ultimately, about nine candidates made the short list. The president recommended the head of state-run utility PLN and a former chief of Bank Mandiri, according to a source familiar with the matter. But regulatory agencies wanted someone with extensive knowledge of the industry, and pushed candidates like a key director at Pertamina. Former Vice President Director Ahmad Bambang, who clashed with Dwi and was fired at the same time, was apparently considered as well.

Many people are keen to protect longtime interests in the field. Indonesia was once Asia's biggest oil producer. The resulting wealth often fostered corruption, with politically connected families pocketing illicit gains. Brokers, referred to as the oil-and-gas mafia, controlled imports of crude oil and petroleum products from behind the scenes. Industry leader Pertamina was a hotbed of entrenched interests and corruption.

Cleaning up Pertamina was at the heart of Widodo's economic reform agenda. Indonesia has rich oil and gas reserves, but companies have not invested enough into developing these resources, which are an important source of income. An increase in imports would only expand Indonesia's current-account deficit.

After becoming president in October 2014, Widodo chose Dwi, who enjoyed success at a state-run cement company, to take charge of reforming Pertamina. Dwi scored major victories, including eliminating brokers from crude oil trading in 2015.

Pertamina's sales fell about 13% in 2016 to $36.4 billion due to a drop in crude prices. But cost cuts and other measures helped raise net profit by about 120% to $3.1 billion. Under Widodo's plans to expand oil and gas revenue, Dwi also made plans to invest $3.7 billion this year in developing oil and gas fields at home and abroad -- about 40% more than in 2016.

But the rivalry between Dwi and Pertamina's longtime directors reached a boiling point, causing turmoil within the company's management. Even Widodo had to accept that Dwi needed to go.

There has been talk since last year of joining Pertamina and state-run gas giant Perusahaan Gas Negara under a common holding company. In a 2016 interview with The Nikkei, Widodo had said the move would happen by the end of that year. But many in Pertamina remain staunchly opposed.

The confusion around Dwi's dismissal and replacement has raised questions about Widodo's campaign for reform. Change at Pertamina could slow down amid a political tug-of-war ahead of the next presidential race in 2019.

Asia300

PT Indofood Sukses Makmur Tbk

Indonesia

Market(Ticker): JKT(INDF)
Sector:
Industry:
Consumer Non-Durables
Food: Specialty/Candy
Market cap(USD): 5,670.22M
Shares: 8,780.42M
Asia300

PT Bank Mandiri (Persero) Tbk

Indonesia

Market(Ticker): JKT(BMRI)
Sector:
Industry:
Finance
Regional Banks
Market cap(USD): 23,195.38M
Shares: 46,666.66M
Asia300

PT Perusahaan Gas Negara (Persero) Tbk

Indonesia

Market(Ticker): JKT(PGAS)
Sector:
Industry:
Industrial Services
Oil & Gas Pipelines
Market cap(USD): 2,948.37M
Shares: 24,241.50M

Get Insights on Asia In Your Inbox

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

Resubscribe now to continue reading.
BEST OFFER:
Only US$ 9.99 per month for a full-year subscription

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.