Ari H Soemarno.

The President/Director of Pertamina since early March 2006, Ari Soemarno then succeeded Widya Purnama. Previously Ari used to be Pertamina's corporate senior vice president in change of the Marketing and Trading Directorate. Born on Dec. 14, 1948, in Yogyokarta, is chemical engineer with a degree from Aachen University (Germany). He began his career as a downstream expert at Pertamina's Downstream Directorate. When he was promoted to senior vice president for marketing, Ari became president-director of PETRAL, a Pertamina trading arm.

(Ari's predecessor as Pertamina CEO Widya Purnama had been appointed in 2004 by then President Mega to succeed Ariffi Nawawi who was sacked after only a year on the job together with five of the board of director's members. Widya previously was a senior executive in the telecommunications business and after his appointment he told a reporter he knew "zero" about petroleum or the energy business.

(In January 2005, President Susilo appointed Martiono Hadianto as chief commissioner to replace Laksamana Sukardi. Sukardi was a minister in Mega's administration which was ousted in the 2004 presidential elections. Hadianto had served as Pertamina president-director from 1998 to 2000 - see profiles of previous Pertamina executives in down12IndnsWhoMar21-05).

Ari's aim behind the IPO was to raise funds and help change Pertamina into a more efficient and competitive company. Pertamina in 2006 made profits of 21 tn rupiah ($2.3 bn), giving 45% to the government. Ari estimated that Pertamina could have a market capitalisation of $30 bn by end-2008 and become the largest public company listed on the Jakarta stock exchange.

However, the proposed IPO was opposed by Minister Purnomo and other officials, including some of Pertamina's high executives, as well as President Susilo. Purnomo (see his profile in omt13IndnsWhoMar26-07), in early 2007 ruled out a listing of Pertamina on the Jakarta stock exchange. But he said Pertamina's non-core units could have an IPO in the second half of 2007.

Purnomo mentioned for privatisation Pertamina's services unit Elnusa and its airline unit Pelita Air Services. President Susilo and other officials have also suggested that all of the non-core units of Pertamina could be privatised. But Ari has said the funds raised from IPOs for such firms would not be enough to help transform Pertamina into the company he wanted to develop.

On Jan. 27, 2007, Ari was quoted as saying an IPO of Pertamina by end-2008 was part of a "very ambitious" target considering the extent of the 50-year-old company's corporate, operational and financial problems. Ari, widely praised for his reforms, said Pertamina had been a cash cow for successive governments for decades to finance projects which were often unrelated to the oil and gas sector.

Ari said a listing, however limited, would greatly benefit Pertamina, forcing the company "to become even more transparent, more efficient and more professional". But he added that privatisation remained a "very sensitive" subject in Indonesia.

Finance Minister Sri Mulyani Indrawati said a flotation of Pertamina shares in late 2008 was "a possibility". She said the government was "in the process of establishing Pertamina's balance sheet", adding: "Once it is done, they will be ready to take any corporate action". However, Ms Indrawati said a flotation would have to be discussed by the government's privatisation committee.

It was then said that any moves to float Pertamina would run counter to the wishes of President Susilo, who is thought to prefer to wait until after the general election, scheduled for 2009.

Analysts say Ari has been a breath of fresh air as head of the company. He has hired consultants from McKinsey and Schlumberger and implemented what he calls a "rigorous transformation program". His immediate goals include publishing an up-to-date financial statement, having it audited and then getting Pertamina to be rated.

The Centre for Petroleum and Energy Economic Studies in early 2007 said it thought it would be safer for Pertamina to raise financing through bank loans, the debt market or co-operation with other oil companies. Ari said he wanted to raise $500m in loans in March and hopefully issue bonds either later in 2007 or early in 2008.

Ari hopes to book Rp 23 tn ($2.5 bn) in profit in 2007. About 40% of this is to come from downstream activities. The government takes 45% of the profits as a form of dividend, while the rest is ploughed back into the company.

Pertamina's crude oil and natural gas production in 2007 is expected to be the equivalent of 240,000 b/d, with 155,000 b/d from oil and the rest from gas. Ari hopes to double this within four years.

Ari in late 2006 said Pertamina was seeking overseas partners like Statoil of Norway to join $18 bn worth of projects aimed at raising production and oil refining. He said Pertamina was to modernise four of its biggest refineries. He said upstream and downstream alliances had been agreed with Statoil, Royal Dutch Shell and Singapore Petroleum Corp (SPC). Soemarno said: "We know we still have, to an extent, a lack of expertise, lack of experience and lack of funds. We definitely won't be able to achieve our targets alone".

Ari also said Pertamina was to help international oil companies (IOCs) to have petroleum retail businesses in Indonesia. Following in the footsteps of Shell and Petronas of Malaysia, Total E&P Indonesie - the local affiliate of the world's second largest LNG producer - Total, is to build five gasoline stations, selling high-quality fuels in Greater Jakarta this year. The overall investment is expected to amount to $5m.

Total's corporate communications manager Ananda Idris in early 2007 said the company was then arranging all the permits and licences needed to operate the gas[oline] stations, adding: "We are in the process of getting permission from the Downstream Oil and Gas Regulatory Agency (BPH Migas). But the target is this year".

These latest five gasoline stations were in early 2007 set to intensify the competition in the gasoline retail business in Indonesia, with Total going head-to-head with the three existing players in the market - Pertamina, Shell Indonesia and Petronas.

The government finally allowed foreign and local companies to enter the retail fuel market in December 2005, after revoking Pertamina's monopoly on the retail fuel business. However, Pertamina still has a monopoly over the sale of subsidised fuels.

Currently, Pertamina and its agents operate about 3,000 gasoline stations throughout Indonesia, while Shell, the first foreign company to enter the retail gasoline market here, now has four stations. Petronas in early 2007 was operating only two gasoline stations, located in Cibubur, East Jakarta, and Bekasi, east of Jakarta; but it planned to open 21 more stations in Jakarta and its surrounding areas, including Bogor, Tangerang, Depok and Bekasi, this year.

Petronas has been optimistic that by the first quarter of 2011, it will have 200 gasoline stations across Java, Sumatra, Kalimantan and some areas of eastern Indonesia, with the overall investment expected to amount to $200m.

Indonesia, with a population of more than 240 million people, represents an attractive market for gasoline retailers as motor vehicles account for almost half of the national consumption of oil, which stands at some 60m kilolitres per year.

Pertamina - Company History: Article 33 of the National Act of 1945 emphasises that "Land, water and their content of natural resources are possessed by the state and are used for the people's utmost wellbeing". Based on this Article, the privilege to manage the petroleum industry is in the government's hand.

In 1960, the Congress declared that the mining of oil and ground gases was only to be for the state, through a company owned and run by the state. Thus Pertamin was set up. Involvement by any foreign entity was to be governed by contract with Pertamin under a law setting the rules and regulations pertaining to the exploitation of the country's petroleum resources. Apart from E&P contracts between Pertamin and foreign firms, there were to be agreements on refining, production of petrochemicals, marketing and distribution, etc.

Another national company, Permina, was established. But Pertamin was responsible for the administration, management and control over petroleum E&P, midstream and downstream operations. In addition, Pertamin conducted the oil distribution's process for the entire nation.

Permina founded the Apprentice Technique School (Sekolah Kader Teknik) in Brandan to fulfill the needs of experts in the petroleum sector. Permina also established the Oil Academy in Bandung at 1962. The Oil Academy's curriculum consisted of several aspects of the petroleum industry, and the graduates turned into the main forces in Pertamin. In 1968, to consolidate oil and gas branches of the petroleum industry for a more efficient management, exploration, production, refining, marketing and distribution operations, Permina and Pertamin merged into one entity called PN Pertamina.

Pertamina was restructured on several occasions through the years and - in a process started in April 2003, on Sept. 17, 2003, the company was legally transformed to become PT Pertamina (PERSERO). That was by the enactment of Government Regulation No.31/2003.

Pertamina is under the Minister for State-owned Enterprises. As a commercial business firm, Pertamina holds a Co-operation Contract under which it assists BP Migas. Due to its transformation into a limited liability company, Pertamina has thus become a profit-oriented enterprise competing with other firms in E&P operations. Under the oil and gas law of November 2001, Pertamina was set to be de-monopolised and privatised. Due to a variety of administrative problems and financial scandals, however, the targets of issuing bonds to finance its projects and of holding an IPO have been missed since then.

In the energy sector, the decision makers of Indonesia's state-controlled power and natural gas utilities are overseeing major change to improve supply and distribution for the domestic market. From the president of the republic down to company executives, decision makers are adjusting to a new national priority: the domestic market.

Now that Indonesia has become a net importer of oil and, due to declining production, the country is no longer able to continue being a major exporter of LNG and pipeline gas, the two utilities are concentrating on efficiency improvements. They are also focusing on commercialisation and elimination of waste.