JAKARTA – Indonesia’s Anti-Corruption Commission (KPK) has taken the unusual step of sending investigators to Texas to look into allegations that state-owned Pertamina oil company engaged in corrupt practices over the procurement of liquified national gas (LNG) from a US energy trader.
Legal experts say the KPK, whose previous clean hands reputation has taken a hammering in recent years, would have had to work through either the US Federal Bureau of Investigation (FBI) or US Department of Justice (DoJ) to question Cheniere Energy executives.
It is still unclear what transpired, and Cheniere did not respond to Asia Times’ request for comment, but sources familiar with the KPK’s four-day trip say the investigators had at least one meeting with Cheniere subsidiary Corpus Christi Liquefaction LLC, which operates three production trains in south Texas.
Observers are puzzled over why the KPK continues with the two-year-old inquiry, originally triggered by Basuki “Ahok” Purnama, the ex-Jakarta governor who became chairman of Pertamina’s board of commissioners in 2019 with a mission to clean up corruption.
“From what I can see so far, there’s no evidence of wrong-doing,” said an independent source close to the company’s board of directors who was unaware of the KPK’s Texas trip. “Maybe there are suspicions, but I’m not sure there is a case here.”
In terms of revenue and income, Pertamina is the biggest of Indonesia’s 100-plus state-owned enterprises (SOEs), which together boast US$600 billion in assets across a range of critical industries and play an outsized and controversial role in the country’s economy.
Most are dogged by inefficiency, mismanagement and corruption, with only 41 attaining the International Organization for Standardization certification for their anti-bribery systems.
KPK officials say they are collaborating with the State Audit Agency (BKP) to calculate losses to the state, a process which ignores losses experienced as part of normal business dealings and is often taken to be a consequence of corruption.
The investigation covers the period between 2011 and 2021, part of the term of former Pertamina president-director Karen Agustiawan, who was sentenced to eight years’ imprisonment in 2019 in a separate corruption case brought by the Attorney-General’s Office (AGO).
She was released a year later after the Supreme Court ruled that she was only guilty of poor business judgment, which had allegedly caused $36.6 million in losses to the state and had not committed a crime – a view shared by many in the petroleum industry.
The losses were incurred over the 2013 sale of a 10% stake in the Basker Manta Gummy (BMG) oil and gas block in offshore Victoria, acquired for $31.5 million in 2009, the year she became the first woman to head an Indonesian state-owned enterprise.
The BMG field stopped production only a year later after the parent company’s upstream subsidiary, Pertamina Hula Energy, watched its share of production fall from a targeted 800 to only 252 million barrels per day (BPD).
The case has highlighted a disturbing trend in graft investigations where businessmen and bureaucrats are increasingly being prosecuted for making flawed business decisions or where the KPK appears to have misunderstood market conditions.
“It is the criminalizing of public policy and the criminalizing of business judgments,” says former commissioner Erry Hardjapamekas, who served on the graft-fighting body when it was the country’s most admired institution. “It’s disturbing and it needs attention.”
Although the KPK hasn’t named any suspects, Agustiawan was last year banned from traveling for six months, reportedly in connection with the Cheniere investigation. Three other unnamed individuals were also handed travel bans.
Anti-graft activists have lost all faith in the latest KPK, the sixth commission since the organization was formed in 2001 and the first to be headed by a senior police officer, Commissioner-General Firli Bahuri.
Since he took office in late 2019, Bahuri has turned out to be as controversial as most critics expected, given the previous bitter conflict between the KPK and the notoriously corrupt police force.
Only two months beforehand, the House of Representatives (DPR) enacted amendments to the 2002 KPK Law which effectively watered down its powers, most notably tightening supervision over wiretapping – a key tool in most investigations.
The amended legislation also removed the blanket prohibition on the commission ceasing investigation of people it had formally named as suspects, a measure to prevent cases being dropped in return for a bribe.
Fifty-seven staffers were laid off in 2021 for failing to pass a civic knowledge test imposed after the KPK lost its independence when it became a mandated part of the bureaucracy, as laid out in the amended law.
An ally of President Joko Widodo, Purnama has been out of the limelight since serving two years in jail for blasphemy, a charge that ensured his defeat in Jakarta’s 2017 gubernatorial election following mass demonstrations by Muslim hardliners.
Rumored to be next in line as Pertamina’s chief executive, Purnama recently revealed that internal audits were focusing on at least two so-called “problematic” LNG sales and purchase agreements, but he gave few other details.
Pertamina signed 20-year contracts with Cheniere Energy in 2013 and again in 2014 for a total of 1.52 million tonnes of LNG, at a price linked to the monthly Henry Hub gas price, plus a fixed component. So far, most of the shipments have gone to the international market because domestic demand for now is being fully met.
The world’s largest LNG exporter in 1990 with sales of 20.3 million tonnes (MT), Indonesia now imports 250MT a year, a figure that is predicted to reach 315 MT by 2025 to satisfy growing domestic demand.
Analysts say while Indonesia remains the sixth biggest exporter, there may be several reasons why it purchases LNG from abroad, including basic risk management to ensure a guaranteed supply to power utility Perusahaan Listrik Negara’s (PLN) six combined cycle plants.
In that way, Indonesia will build credit and credibility internationally and also gain a further understanding on how LNG is traded in preparation for 2040 or earlier when Indonesia is predicted to become a net LNG importer.
Experts who are following the case say it is unclear why the KPK would be taking issue with the contract terms when they appear normal by industry standards.
Cheniere is a publicly listed, high-profile US energy company with a large number of reputable customers. As one analyst put it: “It is unlikely any bribes or other corrupt practices were undertaken when contracting LNG volume with Pertamina.”
Experts believe the KPK may not understand the pricing of LNG, pointing out that the contract price will vary when the yardstick Henry Hub price is solely based on a supply and demand concept.
Normally it trades within an average yearly price band of $2 to $8 million btu, but there are often major fluctuations which will determine whether the government either takes losses or makes significant profits.
In 2022, for example, spot LNG prices hit a record $70.50 btu, with a yearly average of $23.86. Since then, they have dropped back by more than 80%, leaving the market at a high level of risk and uncertainty.
“It is the nature of the oil and gas business that you have to take a long-term view,” says one analyst. “You have to make long-term decisions and that means taking long-term risks.”
The potential for corruption may lie in the shipping contract transporting LNG from Texas to Indonesia because Cheniere is selling its LNG at free-on-board (FOB) Corpus Christi. The same might apply when Pertamina is trading on the international market.
“The KPK would have to gain an understanding of the total transaction cycle by following the money through the whole process,” says one Jakarta-based energy consultant.
Another source with an intimate understanding of Pertamina’s inner workings told Asia Times: “You are never going to find a Pertamina deal that isn’t messy.”