Thursday, October 26, 2006

Chevron in Indonesia: A Wakeup Call (2)

I'm so glad to read an article written by Orin Basuki, reporter of Kompas, the largest newspaper in Indonesia, under the title...chasing the truth to San Ramon. The article is basically based on an audit report completed by Supreme Audit Agency (BPK) on PT Chevron Pacific Indonesia, a subsidiary of Chevron Corp, USA.

The article is centered on cost recovery, a term in oil and gas business in which contractors such as Chevron claim the costs to government/state.
BPK found the following irregularities at Chevron:
1) Caltex polytechnic Riau: Cost recovery claimed US$6.56 million. (So the education & training facility is not a donation of Chevron, it's a state-funded institution)
2) School cost: Cost recovery claimed US$6.29 million for 2004 & 2005. (Again, this is no corporate social responsibility/CSR, it's a state-sponsored)
3) Donation to international school: Cost recovery claimed US$5.94 million. (This isn't a CSR for God sake)
4) Community development & community relationship: Cost recovery claimed US$1.5 million and US$1.47 million respectively. (Not CSR, state-funded activity)
5) Interest recovery: US$4.97 million (this should not be charged as cost recovery item)
6) Modification of collecting stations US$33.98 million: No benefits for the operation.
7) Materials worth US$18.92 million, no gain, charged as cost recovery.
8) Electricity and steam supplied by PT Mandau Cipta Tenaga Nusantara have been doubted the fairness and would cost the government US$210 million and loss to the state at US$1.23 billion.
BPK auditors admit there should be a long list of items that deserved cost recovery, but government's position in most contracts is so weak that contractors tend to mark up cost recovery and charge everything in the mechanism. "Even they charged the cost to pay foreign teachers for expatriate's children or scholarship for children of local staffs. In the end, cost recovery is about the same with all the company's operational costs," Arief Handoko, BPK auditor told Kompas.
Worse, as explained by J Widodo Mumpuni, chief auditor on Chevron, government's position in the contracts is so weak that it coudn't blame contractors for the markups even though they put the country at huge financial losses.
This is what I mentioned in my previous article Chevron in Indonesia: A Wakeup Call.
I hope Kompas would continue the publication of other audit results over oil contractors such as ExxonMobil, ConocoPhillips, Petrochina, CNOOC, Medco Energi, Energi Mega Persada, Pacific Oil & Gas, Santos, Star Energy, Pertamina, Petronas, etc.
Not just that we're aware of how these contractors made lots of money from the country's resources, but we know how careless our government officers (including BP Migas) in performing their role as regulator and supervisor. With that, we know what we should fix right now.

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Anonymous Anonymous said...

PT MCTN is actually a "fake" company to formalize the power business to mark up cost recovery. By doing so, Chevron has robbed between 100 to 150 million dollars yearly in power generation business which should be of non profit activity. Chevron is not a power company, and if it is, the project should be open for normal tender.The issue has been around for the last ten years..but of no resolution.BPMigas should be blamed for the lack of commitment to control Chevron and other PSC.
Moreover, the figures mentioned is only from financial audit point of view. BPMigas should conduct technical audit to all PSCs. There are larger number of billion dollars yearly technical projects which could be done more effectively. The so called Surfactant and LOSF projects at Chevron, cost some hundreds of million dollars,should never be charged to cost recovery.
Again..where is BPMigas? They know the problem very well, but they just not the right person in the administration.

October 27, 2006 8:30 AM  
Anonymous Anonymous said...

A friend from Senayan told me that DPR is now discussing the right candidate to replace BPMigas Head. It was the wrong choice made by the same Committee huh ? The new head should be the real business man with the right national interest. Oil and Gas is the engine of our economy. We better put the best people available...perhaps the best Deputies as well. We can not let that strategic body be managed by the bunch of mediocre officials.
Quo Vadis DPR ?

October 27, 2006 3:49 PM  
Anonymous Anonymous said...

Maybe if the PSC structure is causing such problems the government should look at a royalty based system as operates in many countries. Then the government gets a % of overall revenue and costs are up to the producer. PSCs tend to benefit governments in times of high prices as producers keep a 15% share after costs (even if inflated). Under royalties, the state gets a fixed % of revenue before costs. A much easier system to operate and less subject to abuses but it may not maximise revenue to the state.

October 30, 2006 7:20 PM  
Anonymous Anonymous said...

I realize this is late but... duh... you guys are missing the forest. BPMigas is part and parcel of PT Pertamina. The two are inseperable. I find it odd that despite the 2006 deadline for Pert to become privatized that it is still linked to the gov't. If you really look at these "costs" for Chevron what you should realize is that Chevron, like many other foreign entities lending exepertise and intellectual capital to the otherwise lacking Indonesian oil industry, is getting milked by gov't entities and politically connected cronies. Their costs should be recoverable because the gov't is requiring them to pay these "costs" as a form of extortion whereas the recipients (a school, really?) are nothing more than covers for the corrupt individuals taking advantage of the well-funded foreign intity doing business in their area. Give me a break, this is not Chevron bilking Indonesia but Indonesia bilking Chevron.

September 26, 2007 10:44 AM  

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