The Commission for the Supervision of Business Competition (KPPU) concluded that PT Perusahaan Gas Negara (PGN) had engaged in monopolistic practices in North Sumatera related to industrial gas supply and prices on November last year. PGN filed an objection at the West Jakarta District Court and won. This is the third loss for KPPU within the past two months. What is going on with the KPPU? 

As we previously reported, the case involving PGN has been under investigation since 2015. In its official website, the KPPU announced that the allegation of monopoly by PGN entered the preliminary investigation stage in the second week of October 2016. The case relates to monopoly in the determination of the price of industrial gas in North Sumatera after players in the industry complained about inadequate supply and soaring prices.

Efforts have been made to overcome the gas supply crisis, but new problems are emerging. The gas distribution through Arun-Belawan transmission pipeline, for example, caused industrial gas price to rise from about US$8.7 per MMBTU to US$14 per MMBTU. Another issue arises on the drafting of the Gas Sales and Purchase Agreement (PJBG) between PGN and the consumers. The agreement is considered to be detrimental to the consumer.

The Ministry of Industry on the other hand conveyed the allegation that PGN, as the owner of the distribution pipeline, was deceptive and that caused the industrial gas price in Medan, North Sumatera to be higher when compared with the prices in other regions.

The indication is that the price in the area is not in accordance with the Decree of the Minister of Energy and Mineral Resources (ESDM). Referring to the Ministerial Decree No. 434 K/12/MEM/2017, the gas price in Medan and its surrounding areas should be around US$9.95 per MMBTU. But in reality, the price of industrial gas in the region could reach US$10.28 per MMBTU. The Ministry admitted that the PGN may have to adjust price due to several considerations, but such adjustments have no legal basis.

In addition to the different prices, PGN charges additional cost to the industry amounting to 120 percent over the excess of volume agreed in the agreement. This is what the KPPU meant when they say that the contract between the parties is detrimental to the consumers. This provision also has no legal basis.

Long story short, on November 14, 2017, the KPPU concluded that the PGN had violated Art. 17 of Law No. 5/1999. In its consideration, the assembly states that PGN used its stronger bargaining position in the preparation of the agreement documents contained in the PJGB, and to unilaterally determine the selling price of gas. The PGN was thus slapped with a fine of Rp9.92 billion. In addition, the assembly also made recommendations to the Ministry of Energy and Mineral Resources to align all regulations concerning the price of natural gas. The Minister of ESDM is also required to revise Art. 21 paragraph (4) in the Ministerial Regulation No. 19/2009 and to align it with the Art. 72 in Government Regulation No. 30/2009.

PGN obviously isn’t happy with the conclusion. They argue that the assembly did not base their conclusion on appropriate expert opinions and therefore the conclusion does not reflect the real conditions in the field. In addition to that, the assembly, PGN said, do not have a good understanding of PGN’s business scheme. PGN then filed an objection at the West Jakarta District Court.

On February 1, 2018, PGN’s Corporate Secretary one Rachmat Hutama said that the district court had granted the lawsuit they filed against KPPU. In its consideration, the Panel of Judges concluded that the KPPU did not have the authority to examine this case because this was a problem between business actors and consumers that is supposed to be subject to the provisions in Law No. 8/1999 on Consumer Protection. So the institution with authority to examine this case is the Consumer Dispute Settlement Agency. In addition, the Panel of Judges also concluded that the object of this case was exempted from the Law on Prohibition of Monopolistic Practices and Unfair Business Competition.

Back in August 2017, however, the KPPU said that they faced difficulties in collecting evidence, mainly because there were a number of regulations allowing State-Owned Enterprises (BUMN) to monopolize. KPPU member Saidah Sakwan said that the inhibiting regulations were, among others, provisions in Art. 27 of Law No. 22/2001 on Oil and Gas and even in the provisions in Art. 51 of Law No. 5/1999 on Prohibition of Monopolistic Practices and Unfair Business Competition. There it’s mentioned that the State-appointed BUMN in the distribution of natural gas to consumers are entitled to monopoly, this also applies to other BUMN such as PT Pertamina (Persero) on the sale of fuel oil (BBM) and PT PLN (Persero) on the sale of electrical energy.  So why did the KPPU conclude that PGN had violated the law? The KPPU said they were focused on the alleged “abuse of monopoly session”, and so they believe that the BUMNs allowed to monopolize are only the one mandated specifically by law, in which case such a law must clearly state the objectives and mechanisms of state control. The KPPU argue that the BUMNs with monopoly rights cannot engage in monopolistic practices without supervision.

The Panel of Judges of the West Jakarta District Court, however, ruled in favor of PGN. This is a bad result for the KPPU because this is the their third defeat in the past two months. Earlier this month, the Supreme Court rejected the petition for cassation that the KPPU filed against the decision of the South Jakarta District Court, which annulled the decision they made back in November 2016. The decision in question stated that the oil and gas contractor Husky-CNOOC Madura Limited (HCML) and PT China Oilfield Services Limited (COSL) Indo were guilty of rigging an auction for Jack-Up Drilling Rig Services. On November 29, 2017 the West Jakarta District Court granted the objections filed by the chicken breeding companies that the KPPU had punished for cartel-like practices.

From this series of losses, we’re wondering what is going on with the KPPU. Shouldn’t they be able to provide evidence to the court that they have made the right judgment? With this kind of track record does it mean that the KPPU is simply incapable of conducting their duties? All of this coincides with the KPPU’s process of selecting new commissioners. The KPPU is scheduled to appoint two new leaders this month. Will the new leadership be able to maintain or even improve the performance of the institution?

By Pradnya Paramitha

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