“IMPLEMENTATION OF CORPORATE GOVERNANCE AND RISK

MANAGEMENT IN PT. PERTAMINA PERSERO”

CHAPTER I

INTRODUCTION

1.1. Introduction

“PT. Pertamina (Persero) is a state-owned business entity engaged in

the oil and gas sector. Pertamina's milestone begins around the 1950s. In the

early days of its establishment, the Government of the Republic of Indonesia

appointed the Army which later established PT. Exploitation of the North

Sumatra Oil Mine to manage oil fields in the Sumatra region.”

“Often with existing developments and over time, on December 10, 1957,

the company changed its name to PT. National Oil Company, or can be

abbreviated as PERMINA. This date is then commemorated as the date of

Pertamina's birth to date. In 1960, PT. Permina changed its status to Permina

State Company (PN). Then, PN Permina joined PN Pertamin to become the

State Oil and Gas Mining Corporation (Pertamina) on August 20, 1968.”

“PT. Pertamina (Persero) is a national energy company that is 100%

owned by the Government of the Republic of Indonesia. The ownership in the

management supervision process is delegated to the Ministry of State Owned

Enterprises (BUMN). In addition to conducting surveillance, BUMN also acts as

the Shareholder's Authority.”

The implementation of GCG principles has been carried out by Pertamina

(Persero) so that the company's growth can hamper the improvement of the

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welfare of the entire public. The role of public relations in government agencies

and (SOEs) in implementing the principles of good corporate governance

practically, which is manifested in 4 principles, namely:

1. Accountability, accountability so that the company's management has the

ability to anticipate stakeholder questions on various policies that have

been implemented.

2. Predictability, the ability to predict future business prospects

appropriately and rationally, related to effective, efficient policies in

operations and technical business development in accordance with

business regulations and applicable laws.

3. Transparency, openness of information channels that can be trusted and

open to stakeholders, investors, observers, related public and press

media.

4. Participation, the participation of stakeholders' and investors is required

in obtaining information and data, checking efforts and the process of

returning joint decisions in public companies.

To bridge the GCG implementation policy, internal relations has an

important role in realizing the policy in order to create a productive and clean

corporate work culture. The role of internal relations at PT. Pertamina (Persero)

as stated in the job description, which is formulating strategies and policies for

managing internal communication and its implementation with the aim of

improving the quality of company information dissemination to all workers and

the implementation of corporate and directorate activities according to plan, so

that all information about the company can be known by all workers and

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organizing activities to run well and be successful. However, in practice there

are still some problems in governance at PT Telkomsel such as not being too

transparent, monitoring that has not been rigorous so it is interesting to discuss.

Risk is the effect of the uncertainty of a goal. The effect can be positive,

negative, or deviation from what is expected / targeted by a company (ISO, ISO

31000, 2009). From its understanding, this risk occurs when an operational

activity exceeds, deficits, or deviates from the company's target. With the risks

that occur in a company, then the company is doing good corporate

governance. To properly manage the company needs to mitigate / avoid /

reduce the risk that will occur / that is happening, the company needs to do risk

management so that the company can reduce the impact of a risk. The purpose

of risk management is to maximize company value and create corporate value.

“The application of risk management in a company (Persero) is

contained in the Regulation of the Minister of Finance of the Republic of

Indonesia Number 28 / PMK.06 / 2013 concerning the Formulation, Submission

and Amendment of the Long-Term Plan and Work Plan and Corporate Budget

of the Company (Persero) Article 12 in the seventh point where in the

company's work plan and budget (RKAP) contains the application of risk

management. Regulation of the Minister of State Owned Enterprises Number

PER - 01 / MBU / 2011 concerning the Implementation of Good Corporate

Governance in State Owned Enterprises where in applying Good Corporate

Governance, directors in every decision / action must consider business risks

and must develop and implement an integrated corporate risk management

program. In the Enterprise Risk Management Governance System in Guideline

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A-002-H30000-2015-S9, risk owners must be responsible for implementing risk

management in their functions related to business activities and transactions for

which they are responsible and documenting them and risk registers compiled

by each function for further organized into a risk register for each Directorate /

Neck Function and signed by the highest leadership Directorate / Neck

Function.”

“As a state-owned company, the Board of Commissioners and Directors

are directly appointed by the Government of the Republic of Indonesia, through

the Shareholders' Authority. The election of the Board of Commissioners and

Directors is determined based on the competencies and achievements of each

candidate. Formally, the duties and responsibilities of the Board of

Commissioners and Directors are set out in the Articles of Association of PT.

Pertamina (Persero), and in accordance with the directives of the General

Meeting of Shareholders (GMS).”

The business activities of PT. Pertamina (Persero) is engaged in

conducting energy business. The sector consists of oil and gas, new and

renewable energy, as well as other activities related to or supporting business

activities in the energy sector, as well as the optimization of resources. Thus

Pertamina needs a good governance system to produce optimal performance

as a state-owned enterprise.

1.2. Formulation of the problem

Based on the background of the problem outlined above, the problem

that will be discussed in this paper is

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 1. How is the implementation of corporate governance at PT. Pertamina

Persero?

2. How is the implementation of risk management at PT. Pertamina

Persero?

1.2. Writing purpose

The objectives to be achieved in this discussion are:

1. Describe the implementation of corporate governence at PT. Pertamina

Persero

2. Describe the implementation of risk management at PT. Pertamina

Persero

1.

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 CHAPTER II

SITUATION FACED

2.1. Good Corporate Governance

Good Corporate Governance (GCG) used in the process of managing a

company based on certain principles. Basically the application of CGC is done

as an effort to make it as a rule and guide in carrying out its business activities.

Competition in the business world is increasingly tight, making a company must

be able to stand strong and survive. Therefore the application of GCG principles

is needed as an effort to maintain the existence of a company. It is hoped that

CGC can become a forum to achieve the company's vision, mission and goals

better and optimally.

State Oil and Gas Mining or better known as Pertamina which is a part of

a state-owned enterprise that requires GCG implementation. With the

background of existing conditions, it is necessary to realize that the systematic

and consistent application of GCG is a necessity that must be implemented.

The implementation of CGC in a company aims to stimulate business

development, accountability and increase the value of shares in the long term

without overriding the interests of other business stakeholders. As we know that

Pertamina also has a lot of cooperation with other companies, one of which is a

service company.

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2.1.1.1. Implementation of Good Corporate Governance

“One of the references used in implementing GCG in Indonesia is the

Good Corporate Governance Guidelines issued by the National Committee on

Corporate Governance (KNKCG). In formulating policies regarding corporate

governance, KNKCG obtained input from the Forum for Corporate Governance

in Indonesia (FCGI). FCGI currently has 10 (ten) business and professional

associations. While in the SOE environment, the reference used in

implementing GCG is a decree of the Minister of SOE number Kep-117 / M-

MBU / 2002 dated July 31, 2002.”

The GCG definition according to the decree is a process and structure

used by SOE organs to increase business success and corporate accountability

in realizing shareholder value in the long term while maintaining the interests of

other stakeholders, based on statutory regulations and ethical values. GCG has

five principles which are adhered to in the management of a company and its

subsidiaries, among others:

1. “Transparency”

2. “Independency”

3. “Accountability”

4. “Responsibility”

5. “Fairness”

In its application, there are several things that must be considered in

implementing CGC. First, the key to Corporate Governance itself consists of

several aspects, is:

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 1. Board and Committee

2. Legal, Regulatory and System

3. Hierarchy and Internal Control

4. Policies, Procedures, and Transparency

2.1.2. The aim of Good Corporate Governance

Nowadays Good Corporate Governance (GCG) is very important to be

applied in a company. GCG itself is a structure and mechanism that regulates

company management so as to produce long-term sustainable economic value

for shareholders and stakeholders. GCG is an important thing to implement in

order to recover the crisis that occurred in Indonesia, this is because it is

important in GCG to implement a good management system in a company. The

reason why GCG is implemented in a company leads to several goals. The

objectives include:

1. Carry out the mission and achieve the vision that has been set.

2. Control and direct the relationship between the Capital Owners, Board of

Trustees, Directors, Employees, customers, business partners, creditors,

as well as the community and the environment.

3. Encourage and support business development by taking into account

GCG principles.

4. Manage risks better.

5. Increase accountability to the Company's stakeholders (stakeholders).

6. Preventing irregularities in the management of the Company.

7. Improve the Company's work culture.

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 8. Increasing the company's image (image) is getting better.

2.1.3. The cornerstone of Good Corporate Governance

Companies, especially if they are owned by the state or are familiar with

SOEs are certain to be bound by legal regulations in their implementation. The

application of GCG in state-owned companies has several bases of reference,

is:

1. Law of the Republic of Indonesia

a. “Law of the Republic of Indonesia Number 14 of 2008 concerning

Openness of Public Information”

b. “Law of the Republic of Indonesia Number 11 Year 2008 concerning

Information and Electronic Transactions”

c. “Law of the Republic of Indonesia Number 1 of 2004 concerning the

State Treasury”

d. “Law of the Republic of Indonesia Number 19 of 2003 concerning

State-Owned Enterprises (BUMN)”

e. “Law of the Republic of Indonesia Number 14 of 2008 concerning

Openness of Public Information”

f. “Law of the Republic of Indonesia Number 11 Year 2008 concerning

Information and Electronic Transactions”

g. “Law of the Republic of Indonesia Number 1 of 2004 concerning the

State Treasury”

h. “Law of the Republic of Indonesia Number 19 of 2003 concerning

State Owned Enterprises (BUMN)”

2. “Government Regulation of the Republic of Indonesia”

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 a. “Republic of Indonesia Government Regulation Number 45 of 2005

concerning Establishment, Management, Supervision and Disbanding

of SOEs.”

3. “Regulation of the State Minister for State-Owned Enterprises (BUMN)”

a. “BUMN Minister Regulation Number: PER-01 / MBU / 2011

concerning the Implementation of Good Corporate Governance in

State-Owned Enterprises”

b. “SOE Minister of State Regulation No. PER 08 / MBU / 2010 dated 31

December 2010 concerning Amendment to SOE Ministerial

Regulation No. 04 / MBU / 2009 dated 16 November 2009 concerning

Qualifications and Procedures for Appointment and Dismissal of SOE

Directors”

4. “Decree of the Minister of State Enterprises”

a. “Decree of the Minister of State-Owned Enterprises No. Kep-236 /

MBU / 2011 concerning the Delegation of Partial Authorities and / or

Granting Power of Attorney of the State-Owned Enterprises as

Government Representatives as Shareholders / GMS to the

Company (Limited) and Limited Liability Companies and Capital

Owners to Public Companies (Perum) To the Board of Directors,

Board of Commissioners / Board of Trustees and Officials of the First

Cell in the Ministry of State-Owned Enterprises”

b. “Circular of the Minister of State Enterprises Number: S-375 /

MBU.Wk / 2011 dated December 5, 2011”

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 c. “SOE Ministerial Decree No. Kep-102 / MBU / 2002 concerning the

Formulation of RJPP”

d. “Decree of the Minister of BUMN Number Kep-101 / MBU / 2002

concerning the Compilation of RKAP”

e. “SOE Ministerial Decree No. Kep-100 / MBU / 2002 concerning SOE

Health Level Assessment.”

In order to improve the effectiveness of performance and compliance

with the implementation of the GCG principles above, companies must prepare

a Code of Corporate Governance (hereinafter referred to as COCG) which is an

embodiment of the aspects contained in GCG, laws and regulations prevailing,

cultural values adopted, vision and mission and GCG best practices.

The preparation of COCG is not just for management and decision making for

the company, but also as a control and a test criterion for policies issued by the

company. With the consistent application of GCG, it is expected that all the

values held by the parties interested in the company (Stakeholders) can be

utilized optimally and produce a pattern of mutually beneficial economic

relations. “Considering the dynamic and evolving business environment, the

COCG compiled by the Company is also always adapted to existing internal

and external conditions. Continuous assessment is always done as an effort to

achieve the best work standards for the Company.”

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2.2. Risk management

2.2.1. “Definition of Risk Management”

“Risk management is a system of risk control and protection of assets,

property rights and profits of business entities or individuals on the possibility of

loss due to a risk. According to Irham Fahmi (2010: 2) Risk Management is "a

field of science that discusses how an organization applies measures in

mapping various existing problems by placing various management approaches

comprehensively and systematically.”

“Risk management is defined as a logical and systematic method of

identifying, quantifying, determining attitudes, determining solutions, and

monitoring and reporting risks that take place in every activity or process.

According to the large Indonesian dictionary quoted from (Tony Peramanna

2011), risk is an unpleasant (detrimental, dangerous) consequence of an act or

action. In other words, risk is the possibility of a situation or situation that can

threaten the achievement of the goals and objectives of an organization or

individual.”

“Risk management is a set of procedures and methodologies used to

identify, measure, monitor and control risks arising from the Bank's business

activities. Viewed from the legal basis, risk management is the application of the

precautionary principle that is generally embraced by banks. In addition, risk

management can also be said as a structured approach or methodology in

managing uncertainty related to threats. Effective risk management by banks

will produce a good level of performance and health for the bank concerned.”

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 “Risk management occurs everywhere in the financial sector. That

happens when an investor buys bonds. When an investment manager hedges

its currency with currency derivatives, and when the bank conducts a credit

check on an individual before issuing a personal credit line. Stockbrokers use

financial instruments such as options and futures, and money managers use

strategies such as portfolio diversification, asset allocation, and position

determination to effectively reduce or manage risk.”

2.2.2. Risk Management Process

a. a. Risk identification

“The risk identification process is carried out by analyzing the risk

characteristics inherent in the company, the risks of the products and the

business activities of the company. The risk identification techniques that

can be used are as follows:”

1. Periodically identify all risks.

2. Identifying risks in all products and business activities of the

company.

3. “Analyze all sources of risk, which are carried out at least against

the risks of the company's products and activities and ensure that

the risks of new products and activities have gone through a

proper risk management process before being introduced or

carried out.”

b. Risk measurement

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 Risk measurement is a systematic process carried out by a

company to measure the level of risks faced by a company through

quantification of risk:

1. Periodically evaluate the suitability of the assumptions, data

sources and procedures used. Periodically is a minimum of

quarterly or more in accordance with the development of the

company's business and external conditions that affect the

condition of the company.

2. Improvement to the risk measurement system if there are changes

in the company's business activities, products, transactions, and

material risk factors that can affect the company's financial

condition.

c. Risk monitoring

Monitoring systems and procedures include monitoring the

magnitude of risk exposure, risk tolerance, compliance with internal

limits, and the results of stress testing or consistency in the

implementation of policies and procedures established. Monitoring is

carried out both by the implementing unit and by the Risk Management

Work Unit (SKMR). The results of monitoring are presented in periodic

reports that are submitted to management in the context of risk mitigation

and necessary actions.

d. Risk control

A company must have an adequate risk control system with

reference to established policies and procedures. The process of risk

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 control must be adjusted to the risk exposure or level of risk to be taken

and risk tolerance. Control can be carried out using risk mitigation

methods, including hedging and adding capital to absorb potential losses

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 CHAPTER III

ACTION TAKEN

3.1.Restructuring at PT. Pertamina Persero

Seeing the existing conditions at this time where the implementation of

corporate governance or corporate governance is not optimal and in the midst

of the issue of the elimination of products from Pertamina in the form of pertalite

and premium, the ministry of national-owned companies made a surprising step

in the form of a change or overhaul of the board of directors of PT. Pertamina

(Persero). Renovation or can also be called Depreciation of the structure of the

board of directors of PT. Pertamina (Persero) from eleven people to six people.

Since the appointment of Erick Thohir as Minister of state-owned enterprises by

President Joko Widodo, he has often restructured or restructured company

positions under that state-owned enterprise. Among them PELINDO, Bank

Rakyat Indonesia, and Bank Mandiri.

Previously, the ministry of state-owned enterprises also made an

overhaul to Pertamina's board of commissioners and directors at the end of

November resulting in four names entered at the time, including former Jakarta

deputy governor Basuki Tjahaja Purnama, commonly called Ahok or BTP as

President Commissioner of PT. Pertamina (Persero). There is also a former

Director of Telkomsel, Emma Sri Martini, as Finance Director of PT. Pertamina

(Persero).

Furthermore, Erick Thohir explained in trimming the number of directors

there were other presidential candidates besides Nicke Widyawati. Nicke

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himself was finally still elected as Pertamina's managing director. Erick Thohir

as Minister of state-owned enterprises (BUMN) cut the number of directors of

PT. Pertamina (Persero). The number has been cut from 11 to 6. The Ministry

of BUMN stated several reasons related to trimming the number of directors

among them to ensure that SOEs focus on their core business, maintain

program consistency rather than consolidated restructuring, and Pertamina's

performance is expected to be better.

The plan of the Ministry of BUMN is to make PT. Pertamina (Persero)

becomes a holding and will have sub-holding under it like a subsidiary that must

focus on their respective operations. The board of directors of PT. Pertamina as

a holding will be made into 6 ranks including the President Director, Business

Support Director, Finance Director, Human Resources Director, Logistics

Director, Supply Chain and Infrastructure, and the last is Strategy Director.

The hope of the Ministry of SOEs in trimming the number of directors is

to make each policy in tune. For example, the upstream activities very much

allow for increased work efficiency if decisions can be in tune. The purpose of

this reshuffle of directors themselves was conveyed by Erick Thohir as Minister

of BUMN for the efficiency of the organization within the body of PT. Pertamina

(Persero). Holding is expected to be able to work in strategic areas and

subsidiaries are expected to be able to focus and spread in the operational

section.

The level of efficiency expected from the overhaul of Pertamina's

directors was expected to tidy up their respective tasks and separate technical

matters. The complexity of the bureaucracy is also expected to be more efficient

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in order to smoothen and improve the results expected by many parties. In the

implementation, PT. Pertamina (Persero) has a company structure or board of

directors who do not change much face like Nicke Widyawati who still serves as

president director and Emma Sri Martini as finance director. Previously,

Pertamina's board of directors consisted of:

1. President Director: Nicke Widyawati

2. Upstream Director: Dharmawan H. Samsu

3. Director of Processing: Budi Santoso Syarif

4. Corporate Marketing Director: Basuki Trikora Putra

5. Director of Retail Marketing: Mas'ud Khamid

6. Finance Director: Emma Sri Martini

7. Director of Logistics, Supply Chain and Infrastructure: Mulyono

8. Director of Processing and Petrochemical Megaprojects: Ignatius

Tallulembang

9. Director of Investment Planning and Risk Management: Heru Setiawan

10. Director of Human Resources Koeshartanto

11. Director of Asset Management M Haryo Yunianto

Furthermore, the structure was reduced to six directors including the

following:

1. President Director: Nicke Widyawati

2. Director of Human Resources: Koeshartanto

3. Finance Director: Emma Sri Martini

4. Business Support Director: M Haryo Yunianto

5. Director of Logistics & Infrastructure: Mulyono

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 6. Director of Strategy, Portfolio and Business Development: Iman

Rachman

Pertamina divides its business aspects into two big groups, namely

strategic aspects and operational aspects. In general, Pertamina itself will

overstate the strategic steps for business development. Structurally formed

business support director, where this function is more emphasis on analyzing

the increase in company value and business development. Development can be

done through investment, with investment previously held by a separate board

of directors.

Furthermore, business development is carried out through the

concentration of each business field to the subholding owned. Thus, the

company's operational processes will be more dynamic and should be the core

focus of the business. A centralized business will run effectively and have clear

segmentation and measurable achievement targets.

The expected results of the restructuring or shrinking of Pertamina's

board of directors by the Minister of state-owned enterprises, Erick Thohir are

as follows:

1. Ensure that all SOEs focus on their core business (core business).

2. Consistent program rather than consolidated restructuring

3. Can make Pertamina's performance better

In line with the reshuffle or depreciation of the board of directors of PT.

Pertamina (Persero) is prepared as a holding company and later the state-

owned enterprise in the oil and gas sector will have sub holding such as

upstream.

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3.1.1.Good Corporate Governance towards Risk Management

Risk management plays an important role in ensuring the implementation

of GCG principles in the corporate environment. The application of risk

management is considered good and the realization of GCG. The results of the

study prove that there is a significant influence between risk management and

GCG of 53.40%. Risk management is the most important element in realizing

GCG, following the description of the opinions of experts:

a. “Risk management identifies and manages risks that will affect the

achievement of the desired value by the company (Yana A P and Brady

R, 2014).”

b. “Risk management eliminates the possibility of low income earned by the

organization, and can help organizations move towards optimizing capital

and ownership structures (Stulz, 2005).”

c. “Risk management plays a role in providing reasonable guarantees to

the achievement of organizational goals, providing protection to office

holders from the possible adverse effects caused by risk (Susilo and

Kaho, 2010).”

From the various explanations above, it can be said that risk

management is an element that also determines the successful implementation

of GCG in a company. When the application of risk management improves, the

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company will add control of risk to core competence and competitive

advantage, the relationship between risk management and GCG will be more

acute (Drew and Kendrick, 2005: 33).

Unlike the things that GCG is absolutely necessary to apply, risk is absolutely

necessary in every company activity. Risk can be defined as the possibility of

events that occur unexpectedly and can result in losses. While risk

management itself can be defined as a process or activity to identify, measure,

assess and map risks that might arise and occur in a company's activities.

Simply stated the stages in risk management are:

1. Risk identification

2. Analysis and evaluation of risk in terms of risk value and frequency

3. Setting priorities to determine the controls needed

4. Risk control.

The purpose of risk management itself is not to negate the risk because

the risk itself must be present in every business activity, the purpose of risk

management itself is to minimize the risk to reduce losses to be faced by a

company so that the amount of risk is within the limits of risk capability that can

be accepted by the company.

In its development, risk management is still often regarded as an

obstacle to the progress of the company, starting with the problem of

complicating the company's internal processes to burden the company's own

finances. But in economic development and dealing with a crisis, risk

management is considered necessary and becomes a necessity in a company.

The benefits of implementing risk management include:

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 1. Protect the company from significant risks that can hinder the

achievement of company goals and secure company assets that include

human resources, capital, assets, and reputation

2. Provide a risk management framework that is consistent with the risks

that exist in business processes and functions within the company

3. Encourage management to act proactively reduce the risk of loss, be a

source of competitive advantage, and excellence in company

performance

4. Encourage every individual in the company to act cautiously in dealing

with company risks, as an effort to maximize the value of the company

and shareholders and meet the expectations of other stakeholders.

The basic concept of GCG is to regulate internal balance and external

balance. Internal balance is a balance which regulates the balance between

company organs, commissioners and directors, in matters relating to

institutional structures and operational mechanisms. Whereas, external balance

is a balance which includes the fulfillment of corporate responsibilities as a

business entity in the community and other interested parties. In simple terms

the company should provide good value through the implementation of a well-

conceptualized GCG.

Through the implementation of the concept of good GCG, the company will get

a variety of great benefits one of which is the trust of investors and also to the

community. Companies that can implement GCG well will more easily get the

trust of creditors and investors so this will have an impact on increasing the

value of a company's stock (public companies).

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The principles contained in GCG as mentioned earlier are very necessary to be

applied in a company to deal with problems that may arise in the management

of the company. The application of GCG principles is a plus for the company,

because these principles will reflect the quality of the company itself. A

company that implements GCG principles well indicates that the company has

been well managed. The implementation of GCG is the right solution to create a

healthy and conducive company atmosphere, and avoid scandals that might

occur within the company.

GCG is something that is absolute in the business environment.

Companies will find it difficult to apply GCG principles if they only stick to the

rules. The general goal of companies implementing GCG is to create good

governance in order to gain added value and trust from all stakeholders

including the community.

How the role of risk management in realizing GCG in the implementation of

corporate risk management clearly outlines the guidelines and principles and

methods of risk management. Risk management should meet the guidelines

and principles that have been determined and mutually agreed upon so that its

effectiveness can support the successful implementation of risk management in

a company.

Guidelines for implementing risk management can be set out in the Risk

Management Manual. While the principles of risk management are the basic

rules or norms adopted by companies in developing, implementing, managing

and evaluating risk management. The principles of risk management are

philosophical that must be obeyed in the application of risk management. Both

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of these are expected that the risk management process can truly provide

added value to the company.

The main purpose of risk management itself is to minimize the decline in

income earned by a company, and is expected to help the company to move

optimally in the capital and ownership structure. Risk management is created to

help companies minimize all the uncertainties that exist in achieving the

company's goals that have been targeted.

The success of management in achieving the objectives of a company is

determined by the shrewdness of risk management in managing risks that may

occur in every business activity of the company. A company can attract

investors if the company understands and is able to manage risk well. Risk

management plays an important role in providing protection to the office holders

against all bad things that might occur as a result of a risk. The general

objective of implementing risk management in a company is that successfully

managing a company can increase the value of a company and help

management in the process of implementing good corporate governance.

One company that has started implementing GCG for a long time is PT Pindad.

The implementation of GCG in PT Pindad began in 2004, every year PT Pindad

made continuous improvements until March 2016 the company conducted a

self-assessment of the implementation of GCG per fiscal year ending 31

December 2015. The score obtained was 83,596 which shows that score

improvement is better than the previous year.

Then to assist management in analyzing the implementation of business

activities in order to provide added value to the company, in 2016 PT Pindad

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began implementing risk management. Implementation of its own risk

management in 2016 in the form of a company risk assessment activity is able

to identify many risks that have the potential to occur.

Based on the two general objectives and examples of their application that have

been presented previously, we can conclude that the contribution of risk

management can help improve the quality of GCG implementation within a

company. Risk management should go hand in hand with the implementation of

GCG. Therefore the application of risk management must be maintained and

limited by certain principles. The application of risk management and GCG is

directly proportional, when risk management is implemented and runs well,

GCG in the company will be better.

The application of risk management is also carried out so that various changes

that occur in the process of implementing GCG can have a minimum negative

impact. As has been previously known that GCG has many very complex

aspects. Large companies such as Pertamina will certainly need adjustments to

existing changes.

In the context of optimizing and improving work efficiency, Pertamina

restructured through a reduction in the number of directors. This is considered

to bring Pertamina's management to be better. With the changes, the company

must adapt. The adaptation undertaken must consider the risks that might

result. Therefore, Good Corporate Governance must be balanced with good risk

management.

The implementation of risk management is the responsibility of the Board of

Directors, Management and all of PT Pertamina's Workers. Risk awareness will

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continue to be instilled at every level of the organization and is an inseparable

part of the company's culture.

“PT Pertamina applies the concept of three lines of defenses in risk

management, where risk management is carried out by all lines of the

organization, and oversight is carried out by the Board of Commissioners and

Directors. As a risk owner, all business units and supporting units function as

the First Line of Defense that manages risks related to work units. Meanwhile,

the Risk Management Work Unit and the Compliance Work Unit function as the

Second Line of Defense which monitors the implementation of policies and

provides guidance in risk management. While the Internal Audit Division as the

Third Line of Defense is tasked with providing independent assurance on the

implementation of risk management at PT Pertamina. Therefore, the Directors,

Management and all Pertamina Workers are committed to:”

 Implement comprehensive, effective and efficient risk

management to achieve company goals;

 Considering risk in every business plan and every management

decision making by determining the level of risk tolerance;

 Provide and allocate sufficient resources to optimize the

application of the three lines of defense, including in improving the

competence of all Workers in the field of risk management;

 Instilling awareness of risks at every level of the organization as

an inseparable part of the Corporate Culture.

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 CHAPTER IV

THE RESULTS ACHIEVED

“PT. Pertamina (Persero) is a state-owned business entity engaged in

the oil and gas sector. As part of state ownership, Pertamina is entirely

delegated to the Ministry of BUMN which also acts as the power of

shareholders. Therefore, the Board of Commissioners and Directors are directly

appointed by the Government of the Republic of Indonesia.”

“As a company, Pertamina needs to implement Good Corporate

Governance (GCG) as a reference in optimizing business activities and

achieving the company's vision, mission and goals. The reference used in

implementing GCG in Indonesia is the Good Corporate Governance Guidelines

issued by the National Committee on Corporate Governance (KNKCG) in

collaboration with the Forum for Corporate Governance in Indonesia (FCGI) to

obtain input. The application of GCG refers to the Decree of the Minister of

State Enterprises number Kep-117 / M-MBU / 2002 dated July 31, 2002.”

“In general, GCG itself is the structure and mechanism that governs

company management so as to produce long-term sustainable economic value

for shareholders and stakeholders. Good Corporate Governance (GCG) has

five main principles, namely transparency, independence, accountability,

responsibility, and justice. In its application, one of the keys of GCG is regarding

the rules and composition of the board and committee. Therefore the

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restructuring process carried out at PT. Pertamina by Erick Tohir is part of the

implementation of GCG.”

One of the foundations for implementing GCG in SOEs is SOE

Ministerial Regulation Number: PER-01 / MBU / 2011 concerning the

Implementation of Good Corporate Governance in State-Owned Enterprises. As

an embodiment of the embodiment of the aspects contained in GCG,

companies must prepare a Code of Corporate Governance (Code of Corporate

Governance or hereinafter referred to as COCG). COCG in its application also

acts as a controller and examiner of the policies issued by the company.

The restructuring was carried out by the Ministry of SOEs towards

Pertamina, where there was a structural depreciation of the board of directors of

PT. Pertamina (Persero) from eleven people to six people. The Ministry of

BUMN stated several reasons related to cutting the number of directors among

them to ensure SOEs focus on the core of their respective businesses,

maintaining program consistency rather than consolidating restructuring, and

Pertamina's performance is expected to be better so that each policy runs in

harmony. Holding is expected to work in strategic areas and subsidiaries are

expected to be able to focus and be spread in the operational section.

In addition, risk management is the most important element in realizing GCG.

Its function is to identify and manage risks in core competence and competitive

advantage. The influences that will be caused include aspects of achieving the

desired value by the company, optimizing profits, and providing reasonable

guarantees towards achieving the goals of a company. Basically, the concept of

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GCG regulates the internal balance of the company itself and the external

balance that includes the community and related business entities.

In Pertamina's restructuring by the Ministry of SOEs, the risks faced will be

more directed to changes in workflows internally and cooperation with more

relevant business entities. With these conditions, then risk management can be

done by creating an appropriate and effective work bureaucracy and creating

adequate operational standards and an effective work analysis system. If this

can be done, then Good Corporate Governance is carried out in accordance

with the initial purpose of its application.

Plans to Improve the Quality of GCG Implementation In accordance with

the results of internal and external assessments and in line with the

commitment of all levels of staff to jointly improve the quality of GCG

implementation, PT Pertamina has compiled several main activities to improve

the quality of GCG implementation in 2015, namely:

1. Conducting independent assessment by selected third parties to

measure the implementation of GCG that has been carried out by the

company in 2014. Projected assessment activities are as follows:

- The logistics process was carried out in January 2015;

- Assessment activities will be carried out in May after the GMS is

conducted with an estimate of 1 month by the selected partner;

- Follow up on reports or recommendations made by GCG

assessors, including by completing documents that are not yet

owned by the company;

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 2. Following the 2014 CGPI Award. The target score to be achieved is 85 in

the VERY TRUSTED category.

- Conduct coordination with P2SDM Training related to GCG

socialization and internalization. Coordination includes the

preparation of more measured GCG materials, schedules and the

target number of trainees.

- Continue drafting the Decree of the Board of Directors on the

elaboration of new government regulations and related to

company organs.

Minister of Energy and Mineral Resources Regulation No. 24 of 2013

concerning amendments to the Minister of Energy and Mineral Resources

Regulation No. 28 of 2009 which allows the use of Mining Business Services

and at the same time involves the community. This amendment to the rules of

implementation encouraged the Company to review the mechanism of the

business processes that the company runs. The Company also opens

opportunities for people who are interested in partnering with the Company. In

managing risks related to regulatory changes, the Company continues to

prioritize integrity, business ethics, and the application of good corporate

governance in all its business activities and with the principle of prudence will

continue to monitor the risks of all its activities. The Company will also

continuously foster good relations with stakeholders, especially the fostering of

the local community

Evaluation of the implementation of risk management is carried out

through risk monitoring and review. Risk monitoring and review is conducted

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periodically. Through monitoring and reviewing risks, it is known the

effectiveness of the control plan and other control plans that will be carried out

in the coming period. Through the results of reviews and attention to business

development and business needs in the future, the implementation of risk

management that has been carried out will be enhanced by building an IT-

based Risk Management System and referring to the ISO 31000 framework.

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 CHAPTER V

LESSONS LEARNED

Good corporate governance and risk management can be said as two

things that are vital in running a company, SOE is no exception. After

conducting an assessment of the situation that occurred at PT. Pertamina

Persero, then we draw the conclusion of the importance of knowing the basics

and implementation of good corporate governance.

Good Corporate Governance and risk management is not just a theory

that forms the foundation or foundation of how a company will move. However,

it is a starting point that can be a solution for a company to resolve the problems

faced and become a guide for how the company runs. Implementation of GCG

in SOEs is a SOE Ministerial Regulation Number: PER-01 / MBU / 2011

concerning the Implementation of Good Corporate Governance in State-Owned

Enterprises. As an embodiment of the embodiment of the aspects contained in

GCG, companies must prepare a Code of Corporate Governance (Code of

Corporate Governance or hereinafter referred to as COCG). COCG in its

application also acts as a controller and examiner of the policies issued by the

company.

GCG has five basic principles namely, transparency, independence,

accountability, accountability, and fairness / fairness. The five principles can be

applied in every line of business processes, from small businesses to large

scale companies. From what has been studied previously, it can be said that

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risk management in the absence of GCG can be done with a big idea in the

form of restructuring.

The implementation of GCG principles has been carried out by

Pertamina (Persero) so that the company's growth can hamper the

improvement of the welfare of the entire public. The role of public relations in

government agencies and (SOEs) in implementing the principles of good

corporate governance practically, which is manifested in 4 principles, namely:

1. Accountability, accountability so that the company's management

has the ability to anticipate stakeholder questions on various policies

that have been implemented.

2. Predictability, the ability to predict future business prospects

appropriately and rationally, related to effective, efficient policies in

operations and technical business development in accordance with

business regulations and applicable laws.

3. Transparency, openness of information channels that can be trusted

and open to stakeholders, investors, observers, related public and

press media.

Participation, the participation of stakeholders' and investors is required

in obtaining information and data, checking efforts and the process of returning

joint decisions in public companies.

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