Nindyo Pramono, a law professor at Universitas Gajah Mada, said using “beauty contests” for the procurement of goods and services is not the same as a tender process. However, beauty contests can increase efficiency.
“Companies can decide how to select their partners, including using a beauty contest. This complies with Government Regulation No. 12 of 1998 on Liability Companies,” he said in a seminar on Oil and Gas Business Competition, Tuesday (17/1).
Nindyo explained, choosing business partners through a beauty contest can be justified under the business judgement rule. However, Nindyo asserted that the business judgment rule should be stated in the company’s Standard Operating Procedures.
On the other hand, the Commission for the Supervision of Business Competition (KPPU) stated that beauty contests are identical to the tender process. Therefore, beauty contests are regulated by Law No. 5 of 1999 on the Prohibiton of Monopolistic Practices and Unfair Business Competition (“Business Competition Law”).
Anna Maria Tri Anggriani, one of the KPPU’s commissioners, explained that tenders are not restricted to the procuremement of goods and services. “A tender has a broader application. It applies to the procurement of goods or services as well as stock trades and selecting business partners,” she said at a same event.
She explained that there have been some interesting cases that expanded the definition of the tender process, since the KPPU was formed in 2000. For example, Indomobil’s stock trades, and Pertamina’s VLCC sale were considered tenders.
However, Ari Sumarno, the former President Director of Pertamina, disagreed with Anna’s opinion. “The process for selecting business partners can’t be generalized, especially for the oil and gas industry,” he said.
Ari explained that the oil and gas industry consists of three different areas: upstream, midstream, and downstream. Each area has unique difficulties and challenges. The upstream oil and gas industry focuses on exploration and mining activities. These activities are not cheap. “Natural resources can’t be explored easily. Companies must wait for 3-5 years before developing resources,” Ari said.
Ari also emphasized that midstream businesses can spend USD 4-5 billion for an oil rig, not to mention the cost of refining oil. Meanwhile, downstream businesses focus on retail and sales activites, which can be expensive. For example, Ari explained, Shell spent IDR 20-30 million for one gas station. Since oil and gas businesses require a large amount of capital, the industry is always oligopolistic, where only a few parties are involved.