President and CEO Dwi Soetjipto was forced to vacate his position, along with his Deputy President and Deputy CEO Ahmad Bambang. When announced last week, rumours circulated that the two were part of a cell linked to corruption – sadly not uncommon in Indonesia – but the truth is more sanguine. The two simply did not get along, and their disagreements were detrimental to a state oil behemoth struggling to implement the government’s ambitious energy goals.
Soetjipto was named to Pertamina’s top job in November 2014 by President Joko Widodo. Coming from another state player – cement firm Semen Indonesia where he had successfully merged three smaller ailing state firms into a renewed force – Soetjipto was criticised for his lack of experience in oil and gas, but seen as an emblem of Widodo’s will to reform the energy sector by reducing subsidies, eliminating corruption and kick-starting a moribund industry. Perhaps as a counterbalance, Ahmad Bambang was named Deputy CEO in October 2016 by State-Owned Entreprises Minister Rini Soemarno, a mere three months ago. Bambang was a career Pertamina man, seen as more in line with the existing state oil and gas bureaucratic machinery than Soetjipto.
Both immediately began to butt heads. Bambang overstepped his position by signing off on gasoline imports that were being put off by Soetjipto, a breach of authority. The two also disagreed on key position appointments, leaving important roles like the president director of Pertamina Gas unfilled. Corporate disagreements are not uncommon, but the situation between Soetjipto and Bambang was getting toxic, leading up to their dismissals by the Pertamina board of commissioners and the Ministry of State-owned Entreprises.
The spat comes at a difficult time for Pertamina, struggling to manage upstream production while hitting dead-ends on raising domestic refining capacity. Pertamina’s crude production is declining – forcing it out of OPEC for a second time last November as it could not implement supply cuts – but wants to nearly triple its upstream output by 2025, focusing on jumpstarting domestic fields and hunting for overseas assets. Meanwhile, growing fuel demand is leading to a reliance on expensive exports, as Pertamina’s grand plan to upgrade/build new refineries has stalled. Some progress had been made under Soetjipto, but just last month, Saudi Aramco pulled out of the Dumai project, while Pertamina admitted it may have to undertake the Balongan upgrade alone.
Pertamina’s board is hoping that a new management structure will help speed up things. Yenni Andayani, director for gas and renewable energy, has been named as acting CEO, while the government searches for a new leader by early March. The position of Deputy CEO will be abolished, centralising power in the new CEO, and a streamlining of the company’s 20 existing strategic positions may be implemented. Which raises the question: if the issue was the clash of personalities, why fire both? Soetjipto was a Widodo appointee, so removing him and promoting Bambang would have seemed like an usurpation, but retaining Soetjipto and removing Bambang was not an option as the state energy machinery still viewed the former as an outsider. So both heads had to fall.
This recent development will certainly colour the search for a new CEO, almost certainly to be an executive already rooted within Pertamina. But uneasy lies the head that wears the crown, and the new CEO will step into a some very large boots because the challenges facing Pertamina are vast.
This article was first published on NrgEdge.