Anticorruption authorities in Indonesia are examining a sprawling fraud scheme at state energy giant Pertamina, which holds a near-monopoly on clean product distribution in the country. Executives at Pertamina allegedly set up a complex scheme to import gasoline from foreign refineries, inflate the price and skim money off the top at multiple points in the supply chain. The scheme touched chartering, procurement, blending and distribution, according to local authorities, and one U.S.-based shipping company is suspending the director of its Indonesian JV in response.
Indonesia’s oil industry is highly concentrated, and a small “oil mafia” of well-placed officials and private individuals exert considerable control over the trade. Recently-elected President Prabowo Subianto campaigned on a promise to rein in this “mafia,” and the Pertamina case is the first big test of that effort. (It is not the first time for Pertamina, which has undergone five previous corruption investigations in the past 10 years.)
According to local prosecutors, from 2018-23, a group of nine executives carried out fraudulent trades in order to increase their own earnings. The overall cost to the Indonesian state and local consumers came to about $12 billion.
According to officials, the starting point of the scheme was to declare that certain locally-produced crude was too poor in quality to be used in Indonesian refineries. This opened a legal avenue to import more expensive foreign-sourced gasoline to make up the artificial gap. At that point, the suspects allegedly purchased lower-quality 90 octane gasoline on the foreign market, then blended it and fraudulently resold it as higher-quality 92 octane gasoline in Indonesia. Motorists who used a low-quality fuel in an engine designed for high-octane gas could experience knocking and poor performance, and lawsuits are expected.
“An engine that continuously experiences knocking will lose combustion efficiency. Over time, carbon deposits will accumulate on the piston head and combustion chamber, drastically reducing performance,” said Dr. Nur Aklis, a mechanical engineer at Universitas Muhammadiyah Surakarta (UMS).
