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Indonesia's anti-graft watchdog to target energy sector in 2015

Indonesia's anti-graft watchdog will launch an unprecedented investigation next year into the energy industry, as part of a stepped-up campaign to rid the sector of what President Joko Widodo's administration has called an "oil and gas mafia".

Widodo and his team, even before he was sworn in last month, pledged to reform state energy firm Pertamina and audit its trading arm, Petral, in efforts to cut fuel spending - the main component of Indonesia's fiscal and current account deficits.

For the first time, the Corruption Eradication Commission(KPK) plans to work with tax officials, police and other authorities to investigate Pertamina, Petral and all stakeholders in the energy sector, said an official with the anti-graft agency.

The KPK made a similar audit of the mining sector this year that uncovered tax fraud worth 28.4 trillion rupiah ($2.33 billion) by several large mining firms, and triggered a landslide of reforms including the revocation of more than 4,000 problematic mining permits.

Indonesia's oil and gas sector is the largest contributor to state income, making up an estimated 12 percent of state revenue this year.

"In 2015, we plan to undertake a comprehensive study of the management of the entire oil and gas sector," Johan Budi, deputy chairman for the Corruption Eradication Commission's (KPK) crime prevention unit, told Reuters.

"All stakeholders in the oil and gas sector (will be looked at)," Budi said, in a process that could led to more prosecutions.

The KPK audit will help determine how much graft in the energy industry costs Indonesia, Budi said, adding that the KPK may team up with the government.

Widodo's administration is also carrying out investigations, in efforts to root out a "mafia" it says has influence over high-ranking officials and decision makers in the oil and gas sector, and has commenced an audit of Petral's transactions over the past five years.

Former energy minister Jero Wacik stepped down in September after being named a suspect in a case involving extortion and kickbacks worth about $841,000.

Telephone calls to a Pertamina spokesperson for comment went unanswered, and other industry officials were not immediately available.

The KPK investigation and government campaign to clean up the energy sector could present new opportunities for other national oil companies looking to deal directly with Indonesia.

Widodo's mandate to repair investment in the sector has already been viewed positively by majors operating in Southeast Asia's biggest economy.

The former OPEC member has been hit hard by falling oil production, insufficient gas infrastructure and a series of corruption scandals that have led to the downfall of top energy officials. Indonesia has become a major crude importer with its oil deficit ballooning to $27.7 billion in 2013 from just $3.4 billion in 2004, according to the energy minister.

Budi said the KPK investigation would be similar to its probe into the mining sector this year, which involved working with the tax directorate, police, forestry and mining ministries to ensure compliance with government rules and to plug an estimated $5 billion in unpaid taxes.

Within his first weeks in office, Widodo's newly appointed energy minister Sudirman Said sacked the incumbent director general of oil and gas and told all senior officials at the directorate they would need to re-apply for their jobs.

Days later a former deputy chairman of KPK, Amien Sunaryadi, was appointed to head the oil and gas regulator (SKKMigas).

Sunaryadi's predecessor, Rudi Rubiandini, is serving a seven-year prison term for taking over $1 million in bribes from the owner of a Singapore-based oil company, uncovered in a sting launched by KPK.

Energy minister Said has also formed a team to help completely overhaul regulation of the sector and to find problematic areas, from upstream to downstream.

Published on:
November 27, 2014
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