Chevron Indonesia graft case spooks investors

July 9, 2013 7:11 am

Chevron Indonesia graft case spooks investors

By Ben Bland in Jakarta

When Endah Rumbiyanti, an environmental manager for Chevron, left her Sumatra home for Jakarta to be interviewed about a corruption case, she told her five young children she would be back in two days. After arriving in the Indonesian capital, however, she was detained by the attorney-general’s office and held for 63 days before her lawyers had the detention ruled illegal. Her arrest appeared to also come as a surprise to her captors: she was held in a parking lot until a cell was found for her in a men’s prison. It was one of many Kafkaesque aspects of a case in which Ms Rumbiyanti, 37, and four other employees of Chevron – the US company that is Indonesia’s biggest crude oil producer – are accused of corruption and causing millions of dollars of losses to the state, even though no government funds have been disbursed. The case has highlighted the unpredictable nature of Indonesia’s justice system as officials and departments fight for power in a democracy that is still evolving 15 years after the end of General Suharto’s 32-year dictatorship.The allegations are that Ms Rumbiyanti and her colleagues failed properly to conduct an environmental clean-up project to remove toxic substances from the soil after drilling by Chevron.

The attorney-general’s office claims that Chevron breached technical regulations in the way it hired contractors to carry out the remediation. Thereby, it alleges, the company caused a loss to the state given that under the government’s “cost recovery” scheme it refunds some expenses to oil companies in exchange for a share of their production revenues.

The company and its supporters in government dismiss the accusations and say the trial process is flawed. “The allegations against me are a fairytale,” states Ms Rumbiyanti. She says she was not responsible for the project in question and was working for Chevron in the US for much of the period when the alleged offences are said to have taken place, only returning to Indonesia in mid-2010.

In May, two Chevron contractors were jailed for five and six years, respectively, for their roles in the case. “The trial is unfair and this has become a nightmare,” says Ms Rumbiyanti.

The ramifications stretch beyond the Jakarta court where her trial has been unfolding since December. They go to the heart of Indonesia’s relationship with foreign investors as the nation’s recent impressive economic growth starts to cool.

Even the fiercest critics of the Chevron case cannot explain the root cause. Some industry executives believe a local dispute with a disgruntled failed contract bidder may have taken on greater political resonance because of the resurgence of economic nationalism and protectionism ahead of national elections in 2014.

The allegations against me are like a fairytale

– Endah Rumbiyanti, environmental manager, Chevron Indonesia

Whatever the underlying reason, Chevron is not alone in facing unpredictable court rulings, disputes with local authorities and increasingly nationalist economic rhetoric.

As a result, investment in oil exploration has been stifled, resulting in lower production. While Indonesia is the world’s 20th biggest oil producer, it became a net importer in 2004 as demand for fuel grew faster than investment in exploration.

Its ballooning fuel import bill – forecast to be more than $20bn in 2013 and stoked by subsidies – has driven the budget into deficit and shaken investor confidence in a country that was previously seen as one of the world’s hottest emerging markets.

Investors say the Chevron case bears striking similarities to another pursued by the AGO against Qatar Telecom-controlled Indosat, Indonesia’s second biggest mobile phone network operator. One of its senior executives was jailed for four years last week after being found guilty of corruption in a dispute over how it managed its licences – even though the communications minister insists the company has broken no law.

Chevron has suspended drilling at some rigs in Sumatra because its waste contractor has been scared off by the case. Other energy companies such as ExxonMobil,PetroChina and Total have also found themselves bogged down in seemingly intractable disputes.

Although the attorney-general is pursuing the Chevron case with vigour, senior government officials, an energy regulator and the national human rights commission have sprung to the defence of the seven Chevron workers.

“It is affecting the investment climate,” says Susilo Siswo Utomo, a deputy energy minister. “The main players in the oil and gas industry . . . are very worried and nervous about what’s going on at the moment.”

In May, Indonesia’s National Human Rights Commission said there was “strong evidence of human rights violations” by the attorney-general against the Chevron accused. It criticised a decision to use a failed bidder for the environmental clean-up project as an expert witness, which it said made it impossible for the Chevron workers to get a fair trial.

The main players in the oil and gas industry . . . are very worried and nervous about what’s going on at the moment

– Susilo Siswo Utomo, a deputy energy minister

International energy companies often face complex and capricious legal disputes in emerging markets. But Natalius Pigai, a senior member of the commission, says the targeting of Chevron’s mid-level employees is unfair and argues that “any wrongdoing should be the responsibility of the company or the top management”.

A spokesman for the attorney-general vehemently rejects criticism of the way the case has been pursued, saying that “the prosecutor is just doing its job in line with the law. We hope all parties honour the ongoing judicial process, which aims to save the state’s money”.

Ms Rumbiyanti’s husband says the couple joined Chevron as they wanted a secure job and to help develop Indonesia. But now they have to contemplate a possible multiyear jail sentence for Ms Rumbiyanti when the verdict is delivered, which could be in the next few weeks.

While the couple still hope for a good outcome, they are preparing for the worst.