Indonesia pledges better corporate governance in SOEs<\/p>\n
SANUR, Bali (JP): The government vows to improve corporate
\ngovernance in state-owned enterprises (SOEs) in a bid to boost
\ntheir performance and help ensure successful privatization
\nprograms.<\/p>\n
The deputy minister for restructuring and privatization at the
\nOffice of the State Minister of Investment and State Enterprises
\nDevelopment, I Nyoman Tjager, said the government would issue a
\nnew ruling by the end of the month covering corporate governance
\nreform, and a new set of guidelines to ensure a transparent
\nprivatization process.<\/p>\n
"We realize other countries have been hurt less (by the
\nregional economic crisis) and have recovered more quickly partly
\nbecause of better fundamentals in corporate governance. That is
\nwhy the government is committed to improving corporate governance
\npractices in Indonesia," Tjager said at the second Asia Pacific
\nEconomic Cooperation (APEC) forum on the privatization program.<\/p>\n
Representatives from developed economies under the Overseas
\nEconomic Cooperation and Development (OECD) grouping were also at
\nthe second forum.<\/p>\n
The three-day privatization forum discussed the experiences of
\n21 countries in implementing their privatization programs,
\nincluding improving corporate governance.<\/p>\n
Soeroso, another deputy at the Office of the State Minister of
\nInvestment and State Enterprises Development, said the main aim
\nof corporate governance reform in Indonesia was basically focused
\non improving the performance and the efficiency of SOEs so that
\nthey could provide more tax revenue and dividends for the
\ngovernment and create more employment.<\/p>\n
"The SOEs will be transformed from an operation filled with
\ncorrupt, nepotism and collusive practices in the past into a
\nclean and transparent business," he said.<\/p>\n
Soeroso added that the Asian Development Bank was expected to
\ndisburse some US$250 million in loans in June to help finance the
\nstate budget, but acknowledged the disbursement was subject to
\nthe government's progress in reforming the SOEs sector.<\/p>\n
A senior official at Thailand's finance ministry, Trevor Bull,
\nsaid that improving corporate governance at SOEs was crucial to
\nincrease a government's privatization revenue.<\/p>\n
"If you don't make the SOEs more efficient or if you don't
\nhave a regulatory framework, you won't get a premium for the
\nshares," he said.<\/p>\n
Bull said that addressing the issue of corporate governance
\nwas particularly crucial in large strategic SOEs like utilities
\nor infrastructure monopolies that would not be privatized
\nquickly.<\/p>\n
Tjager said the introduction of new corporate governance in
\nSOEs started early this year through several pilot enterprises
\nwhich included electricity firm PT PLN, publicly listed tin
\nmining company PT Tambang Timah, toll road operator PT Jasa
\nMarga, passenger shipping firm PT PELNI and plantation firm PT
\nPerkebunan VIII.<\/p>\n
The corporate governance reform at Indonesian SOEs include the
\nfollowing:<\/p>\n
The strengthening of the roles and responsibilities of boards
\nof commissioners to be more active in supervising and advising
\nboards of directors of the SOEs.<\/p>\n
Second, redefining the roles and responsibilities of the board
\nof directors to be clearer, particularly in relation to the
\nprimary objectives of each SOE.<\/p>\n
Third, establishing audit committees for the board of
\ncommissioners.<\/p>\n
Fourth, establishing a transparent and well-defined criteria
\nand selection process for the boards of commissioners and
\ndirectors.<\/p>\n
Fifth, introduction of a statement of corporate intent for
\nSOEs which will remain in state ownership for long term. This
\ndocument is an agreement between the SOE and the government as
\nshareholders and includes performance targets and other
\nindications to hold the SOE accountable.<\/p>\n
Tjager said the government also agreed with the International
\nMonetary Fund (IMF) on the need for the SOEs to be publicly
\naudited and to announce their financial statements through a
\ncompany registry.<\/p>\n
"We will promote the reform programs ... I have every
\nconfidence that the SOE leadership will answer the call for
\nincreased performance and accountability."<\/p>\n
Privatization<\/p>\n
The Office of the State Minister of Investment and State
\nEnterprises Development supervises some 144 state enterprises,
\nand the government partly privatized several of them.<\/p>\n
The government plans to privatize another eight companies this
\nyear mostly through initial public offerings in a bid to raise
\naround Rp 6.5 trillion to help finance the state budget.<\/p>\n
Tjager said that three or four companies, including fertilizer
\nfirm PT Pupuk Kaltim, pharmaceutical firm PT Indo Farma and
\nplantation firm PT Perkebunan IV, would be ready for IPOs
\nstarting late in July.<\/p>\n
"We still face many obstacles including uncertain (capital)
\nmarket conditions which might negatively impact the IPOs and
\nstrategic sales of SOEs," he said.<\/p>\n
President of PT ABN-AMRO Asia Securities Indonesia William
\nJ.G. Daniel said it was difficult to judge whether the
\ngovernment's 2000 privatization target could be achieved, but
\nstressed that market conditions were important to ensure a
\nsuccessful IPO.<\/p>\n
"It is important to have targets, but they must be realistic.
\nAnd obviously market conditions are very important as to whether
\nthe targets can be achieved," he said.<\/p>\n
John R. Johnson of PricewaterhouseCoopers (PwC) suggested the
\ngovernment sell a majority stake of state-owned enterprises
\nthrough a strategic sale process instead of an IPO.<\/p>\n
"The thing is that an IPO is subject to market conditions ...
\nbut strategic investors are not thinking of the current market
\ncondition, because they're long-term investors," he said.<\/p>\n
PwC is advising the government on the restructuring of the
\ncountry's state-owned enterprises.<\/p>\n
Johnson also said that to proceed with future privatization
\nprogram, the ministry must get the support of the other cabinet
\nmembers, parliament and the people to ensure its success.<\/p>\n
"The main issue is political will," he said.<\/p>\n
He added that the government must also actively socialize the
\nbenefits of privatization to the public and legislators.<\/p>\n
Johnson explained that of about 150 SOEs in the country, only
\na few were operating in regulated industries providing basic
\nservices such as telecommunications, electricity and toll roads,
\nwith about 90 percent already operating in the competitive
\nprivate sector.<\/p>\n
"There's no reason for the government to keep controlling
\nthese (nonstrategic) SOEs. They should be quickly privatized or
\nliquidated." He added that PwC proposed to the government to
\nprivatize some 50 companies this year and next year.<\/p>\n
He said the extra budgetary cost for keeping the SOEs in the
\nstate's hands were estimated to amount more than Rp 30 trillion
\nper year, including losses from corruption and inefficiency.
\n(rei)<\/p>",
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