Two more state-owned monoliths look set to yield to pressures reshaping the oil-producing world in the 1990s.
Indonesia's legislature is ready to pass a bill by month's end that will end a 30-year-old monopoly of the state oil company, Pertamina. And leaders of Norway's Statoil have recommended a reorganization that would put their company partly in nongovernment hands.
Privatization strikes again.
Change at Pertamina
Pertamina's change comes as part of the political reforms sweeping Indonesia following the May 1998 ouster of Suharto, the country's first president (OGJ, July 26, 1999, pp. 27, 30). The cronyism that characterized Suharto's rule infected the company. Incompetence and corruption, according to the preliminary report of an audit by PricewaterhouseCoopers, cost Pertamina $6.1 billion during the 2 years that ended Mar. 31, 1998.
Indonesian lawmakers propose to turn Pertamina into a limited liability company involved only in oil and gas exploration and production. If, as expected, the current legislation passes, the Ministry of Mines and Energy would handle exploration and production licensing. Oil and gas transportation would move to the Ministry of Communications, refining and gas processing operations to the Ministry of Trade and Industry.
Private companies working in Indonesia welcome the reform. During Suharto's 32-year tenure as president, Pertamina, without formal bidding or negotiation, let 159 contracts to companies linked to his families and friends. And companies complained that Pertamina raised costs with shady subcontracting and purchasing requirements.
In Statoil's case the motivation for restructuring is economic.
Statoil's managers have determined that the company suffers from a complex ownership scheme under which most of the government's interest in oil and gas production lies with an entity called the State Direct Financial Interest (SDFI). Created in 1985 to keep Statoil from dominating the Norwegian economy, SDFI holds interests representing 40% of the country's reserves. Statoil manages SDFI's holdings, estimated to be worth at least three times Statoil itself, without booking any of its costs or revenues.
The current system obliges Statoil to manage the assets it owns and those it manages on behalf of SDFI so as to reap maximum value for the government from offshore licenses and petroleum sales. Its managers point out that doing so can conflict with the company's commercial interests. Furthermore, say Statoil managers, SDFI can't realize its potential market value as a passive entity managed by Statoil. They also say Statoil needs to be bigger in order to compete internationally and to become a strong competitor in the European gas market.
For those and other reasons, Statoil's management proposes to merge most or all of SDFI into their company. They further recommend that ownership of the enlarged company be made available to the public, with the state retaining an unspecified but significant share. And they suggest that the state adopt a new caretaker arrangement for whatever part of SDFI isn't put on a commercial basis through merger with Statoil.
If implemented, these changes would invigorate a company strongly grounded in the North Sea and already moving into upstream ventures elsewhere. The initiative responds in part to the need for scale in an industry where mergers have created global competitors with market values 10-15 times what Statoil estimates its worth to be now.
The changes pending for Pertamina and Statoil fit a longstanding trend in the global petroleum industry. In very different ways, they illustrate the detriments of state ownership of natural resources and the competitive forces building worldwide.
Private companies are merging and strengthening through scale. State companies are weakening through inefficiency of operation and the erosion of value.
So who's next?