Anti-corruption laws misapplied in spate of probes into Indonesia state companies execs: Analysts

JAKARTA - A graft probe into the former boss of Indonesia’s state energy company Pertamina for signing off on long-term gas supply contracts that later made some losses has perplexed the public and experts alike, who say such business decisions do not amount to corruption.

There are also fears that similar graft cases targeting chief executives for exercising their business judgment could discourage the country’s talent from helming state-owned companies.

In 2013 and 2014, Pertamina’s former chief executive Karen Agustiawan instructed a colleague to sign 20-year contracts to procure liquefied natural gas (LNG) from Corpus Christi Liquefaction (CCL), a subsidiary of Texas-based Cheniere Energy, with the supply to commence in 2019.

Pertamina is tasked with ensuring Indonesia meets its existing and potential energy needs for stable economic growth. At the time, the country’s domestic gas demand was expected to grow robustly.  

However, actual demand for gas in 2019, the first year of delivery under the contracts, was lower than expected, which prompted Pertamina to resell the excess to third parties.

It booked a profit from the sale because the pre-determined price it paid CCL was lower than the global market price then.

Market conditions were reversed in 2020 and 2021 as demand for gas and prices slumped, causing Pertamina to incur losses, triggering the corruption probe.

Agustiawan was made a corruption suspect on June 8, 2022, but anti-graft agency Corruption Eradication Commission (KPK) declared her legal status only 15 months later on Sept 19, 2023, when it detained her.

She remains in detention awaiting trial.

KPK accused Agustiawan of improperly engaging in a gas procurement contract that later caused the state losses of 2.1 trillion rupiah (S$183 million). She has denied the allegations, saying there was no such loss, and that the contracts were collectively and collegially approved by Pertamina’s board of directors.

KPK spokesman Ali Fikri declined to comment on the case when contacted by The Straits Times.  

Agustiawan has said that she did not personally benefit from the LNG contracts with CCL.

In an open letter to President Joko Widodo dated Sept 25 that was reproduced in local media, she said: “I personally did not make any material gains, or immaterial gains, from the LNG procurement from Corpus Christi.  

“The Corpus Christi transaction in fact has positioned Indonesia to have a source of gas supply from overseas through 2040 with a pre-agreed price below the global market price.” 

In 2022, gas prices rebounded due to post-pandemic recovery and the Russia-Ukraine war which disrupted international shipments and shrank global energy supply.

According to data from Pertamina, between mid-2019 and mid-2023, a total of 87 LNG cargoes were delivered by CCL to Pertamina, which in turn resold them to third parties for net gains of US$88.87 million (S$119.4 million) over the four-year period.

Any potential future net gains for Pertamina, observers said, would be jeopardised if Agustiawan was later convicted, as such a court ruling would make the LNG agreement flawed, giving CCL an option to terminate the contract. 

Dr Fereidun Fesharaki, founder and chairman of international energy consultancy FGE, said CCL had publicly filed the Pertamina agreements with the US Securities and Exchange Commission, and that the deals were open for public consumption and scrutiny.

“In the global LNG business, no one understands the reason for this investigation, and (everybody) wonders what is the real reason behind this,” Dr Fesharaki told ST.

He also pointed out that public filings showed more than five other buyers around the globe had signed similar deals with standard terms around the same period.

Mr Metta Dharmasaputra, co-founder of Jakarta-based business and research firm Katadata Insight Centre, said Agustiawan’s case is not an isolated one.

He said the anti-corruption laws have been misapplied in a number of cases against other officials of state-owned companies, including those who introduced policy changes that did not enrich themselves or other people.

“If we let this continue, we will have substandard government and state-owned company officials, who do not make quality decisions that add value,” Mr Metta told ST.  

He cited other cases such as the 2021 case against R.J. Lino, the CEO of seaport Pelindo, who procured new container cranes to ease the port’s backlog but was later accused of causing losses at the state-owned company.

A third case that has drawn debate is that of Internet provider IM2 CEO Indar Atmanto, whose company jointly used a 2.1 GHz radio frequency with its publicly listed parent company – a common practice in the industry – but was thrown in jail in 2013 for alleged wrongdoing. 

Lin Che Wei, a senior adviser to the Trade Ministry, was also imprisoned in January 2023 after he had taken steps to help curb cooking oil prices.

There were several other similar cases between 2013 and 2023. 

“There are a number of companies whose executives have been jailed without evidence of a proper investigation,” Professor Todung Mulya Lubis told local daily Jakarta Globe, pointing out that the companies being investigated were actually among those that had been practising good governance.

“Judging from these corruption cases, we need to review how we have been applying the corruption law,” Mr Metta said.

“There have been times the law was used to criminalise officials who made policies in good faith, and there were claims that rogue prosecuting officers were using the cases to extort money,” he added.

For Agustiawan, this is not her first encounter with the anti-graft officers. She had served 1½ years of an eight-year jail sentence for Pertamina’s US$58.7 million investment in Australia’s Basker Manta Gummy oil and gas field in 2009 that caused losses.

Agustiawan appealed to the Supreme Court, which released her from prison in March 2020.

“A company director’s business decision cannot be interfered with by anyone. If that decision causes the company to incur loss, that is considered a business risk,” Supreme Court spokesman Andi Samsan Nganro was cited saying on March 12, 2020, by the news portal Detik.com.