PERTAMINA TRANSFORMATION IN CHANGING ENVIRONMENT. May 2009

PERTAMINA TRANSFORMATION IN CHANGING ENVIRONMENT May 2009 FOR MORE THAN 30 YEARS, PERTAMINA HAS CARRIED OUT THE GOVERNMENT’S MANDATE TO SUPPORT IND...
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PERTAMINA TRANSFORMATION IN CHANGING ENVIRONMENT

May 2009

FOR MORE THAN 30 YEARS, PERTAMINA HAS CARRIED OUT THE GOVERNMENT’S MANDATE TO SUPPORT INDONESIAN ECONOMY Monopoly Era: Fueling the Economic Growth 1971-1999

Transition Era: Upholding the Economy Post-Crisis 2000-2005

Economic and • Centralization of country’s Political economic and political power Landscape • Emphasis on political stability for economic growth; use of subsidies to ensure social welfare

• Democratization and

PERTAMINA’s • PERTAMINA as a growth engine for national economic Roles development

• Prepare for competition:

Open Era: 2006-onwards

decentralization – with ‘transitional’ instability • Slow economic recovery • Transition towards open, competitive markets

relinquish regulator role • Continue to ensure supply during transition

Since 1976, PERTAMINA … • has been converted from a business to a state agency • has not received working capital from the Government • mainly served to carry out the Government's demands to distribute fuel products • has been told to take no risks upstream; let the PSCs take the risks 1

NOW, WE ARE FACING MULTIPLE CHALLENGES Where do we go from here Important shifts in external context… Laws and regulation increases focus on real performance

?

!

“”

Complex and challenging stakeholders

Significant internal challenges… Our starting position… Small by international standards Not as profitable as we should be Do not enjoy significant upstream position

Obligations as a state-owned company Lack of competitive mindset and skills Under-invested infrastructure and systems Significant leakage problem

2

LAW #22/2001 IN PARTICULAR MADE PERTAMINA AS “JUST ANOTHER PLAYER” IN INDONESIA’S OIL AND GAS INDUSTRY Pre Law #22/2001

Post Law #22/2001

• PERTAMINA

• Overall policy/direction setting for the industry: Ditjen Migas • Regulation and supervision of business entities is conducted by implementing bodies – Upstream: BP Migas – Downstream: BPH Migas

Regulator

• PERTAMINA as the industry monopoly Operator

Natural resource custodian

– Sole operator for processing and downstream – Operator for upstream; contracting with private players through PSCs

• PERTAMINA as government’s custodian – collect “rents” on behalf of government

• PERTAMINA is just another player – Processing and downstream are opened for “any” operators licensed by the Government – Upstream is opened for “any” operators under PSCs with the Government

• Custodian role is conducted by regulatory bodies

3

ROADMAP OF TRANSFORMATION (2008-2023)

2023

Today

2007 “Do something Create something

2008

2013

2018

Achieve success

5 tahun

Build your legacy…”

5 tahun 5 tahun

June 14, 2006

2023

Lima tahun pertama: Membangun Lima tahun pertama: Membangun landasan untuk tumbuh di rumah pasar landasan untuk tumbuh di rumah sendiri sendiri domestik Indonesiano.1 no.1 Perusahaan Indonesia •Perusahaan operasional Keunggulan operasional • Keunggulan Role model untuk reformasi Role•model untuk reformasi Indonesia Indonesia

Lima tahun kedua: Perusahaan tahun kedua: Perusahaan Lima Lima tahun kedua: Perusahaan minyak yang memimpin minyak yang memimpin di minyak yang memimpin dipasar pasar pasar Asia Tenggara Asia Tenggara Asia Tenggara P minyak gas yangyang Perusahaan • erusahaan minyak dan gas Perusahaan minyak dandan gas yang terbesar ini terbesar diwilayah wilayah ini terbesar di di wilayah ini Partisipasi internasionalyang terus internasional yang terus Partisipasi internasionalyang terus •Partisipasi tumbuh tumbuh tumbuh Meningkatkan kapabilitasteknis kapabilitas teknis Meningkatkan kapabilitas teknis •Meningkatkan

Lima tahun ketiga: NOC Kelas Dunia • Setingkat dalamkapabilitasdengan IOC lainnya • Partisipasiinternasionalyang meningkat • Termasuk dalam 15teratas perusahaanminyakdunia

NOC evolution* Professionalism Phase 3: Go international as an operator

Phase 1: Build the foundation

Phase 2: Build operational excellence

Vision Foundational Theme of Transformationi

Time

Transformation process

Update

Best Practice

PERTAMINA CHAPTER

OUR APPROACH TO CULTURAL TRANSFORMATION

DRIVERS OF A PERFORMANCE CULTURE: MINDSETS AND VALUES •“The way we do things around here” is driven by what we do not see…

Description

• Business What we see…

performance

• Quality of management practices What we do not see…

• Behaviors of key individuals

Example in Pertamina context – with regards to performance

• $ EBITDA, millions bbl/day production • Frequency and quality of people performance review implemented

• How serious the GM/Kadiv is about preparing and conducting a performance review

• Only 31% agree to “This company

recognises performance results that exceed an employee’s personal obligation satisfaction to the company” • Mindsets of • “We are government agents to serve the individuals and country” groups of individuals • “Keeping weak performers in the organization is better than giving them consequences”

• Employees

• Values the

• Public orientation organization upholds • Collectivism • Bureaucracy

THE APPROACH TO TRANSFORMING CULTURE AT PERTAMINA

•PHASE I •Where are you today and

•PHASE II •What do you need to do

•PHASE III •How do you implement

where do you aspire to go?

to get there?

for impact?

Direction

Accountability

External orientation

Coordination and control

Leadership

Capability

Innovation

•“From-to”

•Prioritized

themes

action plan

Motivation

Environment and values

•Organisational performance profile (OPP)

•Influence model

•Change program choices

WE DESIGNED THEME-O-METER TO CHECK THE EFFECT OF CULTURE CHANGE PERIODICALLY •Theme-o-meter for “Pulse check” of

•OPP

culture change propagation

1

•OPP 2

•Theme-o-meter survey overview •Preparation and

•Example question

•Analysis method

•Silakan pilih 4 kata-kata saja di bawah

• Each word is ‘secretly’

ini yang menurut penilaian anda memberikan gambaran yang tepat tentang situasi di Pertamina bekaitan dengan tema sistem reward dan konsekuensi dasar kinerja pada saat ini. • Bias • Proporsional • Keliru • Diabaikan • Konsisten • Politis • Masuk akal • Dimanupulasi • Transparan • Perlakuan • Terhubung istemewa • Mengelak • Tidak • Tidak memihak terhubung • Standar • Mengakui

linked to four categories: – Actively supporting – Passively supporting – Passively resisting – Actively resisting

setup

• Designed and tested by groups of employees • 840 respondents (4.7%) is sufficient for 90% confidence level • Conducted every 3 months

Source:

• Outcome used to understand: – Whether there is critical mass (30%) for culture change – Environment ‘temperature’ within organization McKinsey

BREAKTHROUGH PROJECT

BREAKTHROUGH PROJECTS DELIVERED TANGIBLE AND INTANGIBLE BENEFITS Why we launched BTPs

BTPs delivered tangible and intangible impact Example of 4 successful breakthrough projects (out of a total of 22 projects)

• Catalyzing the transformation journey • Build momentum for change by delivering

1

quick & visible (big or small) wins

• Engage the whole organization in transformation effort

• Develop capabilities and leadership

From Pondok Tengah Field Devt

Significant improvements in critical depots

4

New travel policy implemented

• Jumlah SDM yang menangani proyek 30 % dari yang diharapkan

• First oil production dapat dilakukan



2 bulan lebih awal dari rencana awal berdasarkan POD yang telah disetujui oleh BP Migas. Produksi rata-rata 1500 BOPD sejak tgl. 9 Agustus 2006 dan 3000 BOPD sejak 24 Oktober 2006

3

Million US $ savings from transportation loss control

• Target penurunan transportation • •

100 days

2



loss dari 0.15 % menjadi 0.1% (20 kapal) Keterlambatan pembentukan Tim kira-kira 1 bln Musibah kebakaran membakar habis sistim informasi dan monitoring kegiatan kapal Berkat kerjasama tim yang baik BTP selesai tepat waktu dan melampaui target awal, mencapai 0.06 %

11

BTP SELECTION PROCEDURE

List of corporate BTPs

Review progress of BTPs

Screen the list of key directorate initiatives for 2009

Reflect/review directorate strategies

List of directorate/unit BTPs

Source:

Team analysis

PORTFOLIO OF PRIORITY INITIATIVES ESTABLISHED BOTH AT First step to becoming a CORPORATE AND AT DIRECTORATE LEVELS world class NOC

“Earn the Right to Survive” Upstream • Drilling plan • Regulatory management • Reserve Certification and Production Audit Refining • Operational Performance Improvement (OPI)

M&T

“New Sources of Growth”

“Develop the Core” E&P • PT EP CEPU production acceleration and capability building • Operational excellence • Domestic expansion strategy – Investing in new PSC’s – PHE JV management – Offshore E&P

• Natuna • Refining capacity expansion • Petrochemical Strategy

• Refining

• Plant upgrading

• Achieving lowest cost possible

Corporate services • HR transformation • SAP implementation • Strategic planning and Investment realization

• Good governance • K3LL/HSE – Upstream, Refining and M&T

• Company risk management

M&T • LPG business Corporate services • Supply chain optimization • Internal engagement and stakeholder management • Performance culture integration (Culture change) • Divestiture of non-core assets • Preparing for public company status

Main Activities of RJPP are large complex projects that require comprehensive planning and substantial resources commitment

About 700 people directly involved on RJPP project

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PORTFOLIO OF PRIORITY INITIATIVES ESTABLISHED BOTH AT CORPORATE AND AT DIRECTORATE LEVELS, 2009 Upstream

Refining

M&T

GA

Manpower Plan and Policy

OPI

M&T Endgame Plan - Radical Ideas

Manpower Planning And Recruiting

CBM Strategy

Pengembangan RU III Plaju

Improving LPG Business

Early Professional Development Program

Long-term Gas Busines Strategy

Bottom Upgrading RU V - Balikpapan

Accelerate and Optimize LPG Service Infrastructure

HSE Improvement & Implementation Program

Build Commercial Capabilities on Business Development Corporate Secretary

Finance

Corporate

Preparing for Public Company Status

SAP Implementation

Business Information Integrity

Pertamina Clean

Enterprise Risk Management

Biofuels Strategy

Corporate Asset Image Make-over

Badak – LNG Business Transformation

Integrated Downstream Optimization Source: Discussions with each directorate – Oct 2008

THE PERTAMINA CLEAN BTP ACROSS THREE DIMENSIONS Activity

Impact

Education and communication

• Designed the Clean Dialogue

• Roll out Clean program and Pertamina Mendengar

Prevention

• Syndicated BoD top concerns and • Reduce leakage from Pertamina collaborating with stakeholders on • Improve confidence of employees due to clearer

during Dialogue Days • Integrating Pertamina Mendengar • Allows role modeling by top team and emphasis on in Ramadan Safari importance of Pertamina Mendengar • Re-launching ethics workshop for • Allows all procurement staff and Managers and vendors and also to vendors (new) above to understand grey areas and conflict of interests

designing preventive measures on measures some of these, e.g., upstream audit system • Procurement diagnostics • Identified potential annual savings across nonhydro spend in Refining, Upstream and GA, potential for efficiency gains and improvement to image Enforcements

• Investigative and whistleblower

• Enabled the procurement of relevant services and

services the launch of Pertamina Mendengar • Launching Pertamina Mendengar • Provision of alternate channels for employees to on 1st week of Aug 2008 complain about conflict of interests, fraud, violation of laws and regulations and corruption • Syndicated BoD concerns • Allows CEO and BTP owners to focus on top enforcement concerns Source: Compliance team

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COMMUNICATE THE CLEAN MESSAGES

Why Clean is critical

What are unethical practices

What does Clean comprise

What is the role of AsMan and above

Source: Compliance team 16

OUR “greatest hits” to date • Starting cultural shift (efficiency and cost awareness, Leadership & Culture

customer focus) as seen in the Theme-o-meter (>70% supportive of the transformation); openness to best practices & external hires • Leaders starting to behave as role models

Upstream

• Increased oil production (8% increase)

Refining

• OPI value creation (more than 150 MUS$)

M&T

Finance & GA

• Pasti pas roll-out (ca 1778 stations) • LPG conversion • Increased investment realization (>70%) • mySAP implementation underway • Clean initiative underway (whistleblower, integrity pact) • People reviews rolled out (15000 people)

THROUGH CULTURE CHANGE PROGRAMS , WE DEVELOP OUR PEOPLE BTP WAVE 2: LEADER TEMPLATE

People Review

Leader:

Directorate: Performance record

Leadership competency

Overall performance record

Low

Average

Overall leadership competency

High

Low

Experience

Average

Specific competencies*

Position

Description and achievements

• • •

• • •

Managing the business

Making others succeed

High

Top 3 strengths as a leader

• • •

Personal qualities

Medium

Expertise: Skills:

• • •

Leadership portfolio

High

Conte nt knowledge

Med

Top 3 development needs High

Hig h Med

Low

Low

Leadership competency

Interpersonal skills

Content knowledge/specialization

Low Low

Med High

Performance record

* Use template provided Source: Client team

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Breakthrough Projects

Around 1000 employees involved in three phases of BTP

Core Culture Change Workshops

1,724 people (L4 above) get upskilling on culture change moduls

PERSONAL QUALITIES

Transformation Leadership Engine

MAKING OTHERS SUCCEED Helping subordinates achieve goals.

Individual’s ability to behaviorally demonstrate “inherent characteristic” .

 Continuous Learning  Innovation

 Developing Others  Change Leadership  Delegating Responsibility  Monitoring and Evaluating  Visionary Leadership

PERTAMINA LEADERS MODEL

INTERPERSONAL SKILLS

MANAGING THE BUSINESS

Developing & maintaining productive interpersonal relationships.

Individual achievement of business results.

 Building Business Partnerships  Building Trust

Community of Practices & Implementation

2,500 people (L4 above) received objective performance review with meaningful difference among them

1

 Profitability Focus  Customer Focus  Marketing & Entrepreneurial Insight  Strategic Decision Making

2 Ukur Strategi KPI nilai dan s yang Rencana dihasi 6 bisnis lkan Rewar Monitor 3 ds and manage Target dan performa & connce and 5 health perfor sequePeopl manc nces e’s4 Dialo e gRevie Tracki w contra ng Busin ct ess perfor manc e

145 qualified transformation leaders trained through Transformation Leadership Engine (TLE) program

Around 150 top managers participated in CoPI Programs (Performance Dialogue, Coaching & Feedback)

…AND THEME-O-METER RESULTS SHOW SIGNIFICANT INCREASE IN NUMBERS OF PEOPLE WHO ACTIVELY SUPPORTING TO CULTURE CHANGE

Support to Peformance Culture % dari total people count Actively Resisting (AR)

841 4

707 4

6,479 2

28 Passively Resisting (PR)

49

Perception on environment % dari total words count 7,760 2

22

20,160 Actively Resisting (AR)

18

16,968 154,987 186,240

16

11 15

41

Passively Resisting (PR)

26

8 13

22 32 31

42 Passively Supporting (PS) Actively Supporting (AS)

45 Passively Supporting (PS)

35

27 28

33

14

21

28

31

Theme-o4 1 2 3 meter survey Jul ‘07 Nov ‘07 Apr ‘08 Nov’08

Tipping point ~ 30% Actively actively Supporting supporting (AS) individuals

28

34

43

47

Theme-o1 2 3 4 meter survey Jul ‘07 Nov ‘07 Apr ‘08 Nov ‘08

Source: Team Analysis ; Cochran (Sampling Technique, 1963); Sudman (Applied Sampling, 1976)

NET PROFIT AND DIVIDEND, 2004 - 2009

CAGR

+24%

2004 Net Profit Devident

200 5

200 6

200 7

2008

2009

CONTRIBUTING IN TERM OF DIVIDEND (PERCENTAGE) +22%

55.71 47.92

48.49

2007

2008

31.16 44.29 77.98

68.84

52.08

51.51

-13.99% 1.20%

41.50%

78.76% 55.71

22.02

2004

22.02

47.92

48.49

2007

2008

31.16

2005

200 6 Non Pertamina Pertamina

200 4

200 5

2006

THANK YOU

22

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