On reforming state monopolies<\/p>\n
Iming M. Tesalonika, Business Law Lecturer, University of Pelita
\nHarapan, Jakarta, imingtesalonika@lawyer.com<\/p>\n
In his article Reassessing State Monopolies at The Jakarta
\nPost dated April 2, 2004, Patrick Guntensperger provided a brief
\noverview of how and where government utility monopolies should be
\nmanaged and how private utilities should be directed. I have
\nconcern his article may lead to incorrect perceptions among
\nforeign investors.<\/p>\n
In my opinion, Patrick does not have a complete picture of the
\nexisting business situation and legal infrastructure governing
\nstate monopolies.<\/p>\n
Patrick said Indonesia had a dilemma on its hands. He asserted
\nthe Indonesian government had not been able to run any state
\nutilities efficiently because of the inexperience of the
\nbureaucrats, the instability of political parties and the
\nappalling and widespread corruption of the bureaucrats and
\nmanagers at these utilities.<\/p>\n
While there are many truths in his points, they should not be
\nviewed as the underlying causes of inefficiencies in the
\nmanagement of state utilities. In my opinion, the inability of
\nthe current Indonesian government to manage state utilities is
\ndue to the sudden unbundling of authority, leading to an
\nunbalanced distribution of power. After 32 years of a centralized
\nmanagement system under the Soeharto regime, this is not
\nsurprising.<\/p>\n
It was not until 1999, we realized Indonesia was unprepared in
\nterms of legal infrastructure and in attitude and behavior to
\nfoster competitive, transparent and accountable management
\nsystems.<\/p>\n
Patrick's statements help us identify the current urgent
\nproblems (i) the lack of political will towards legal enforcement
\nand (ii) lack of policy implementation -- little focus on
\nchanging monopolistic behavior and the absence of reform of
\npersonnel within government institutions and state utilities.<\/p>\n
During Megawati's presidency she maintained Attorney General
\nM.A. Rahman despite his low credibility and there was little
\nstrategic effort to improve the quality of human resources
\nelsewhere in her government.<\/p>\n
On the management of privately owned utility monopolies,
\nPatrick said these utilities would have to be closely monitored
\nand regulated.<\/p>\n
However, he believed this was likely to lead to enormous
\namounts of bribery and graft involving bureaucrats responsible
\nfor this monitoring. Meanwhile, a few government officials and
\ntheir pet corporations would get wealthy while services remained
\nnon-existent at worst and undependable at best.<\/p>\n
While he identifies the symptoms, Patrick's view in my opinion
\ndoes not highlight the root cause of inefficiencies in privately
\nowned utilities, which revolve around the issue of law
\nenforcement.<\/p>\n
State bureaucrats do not feel insecure nor hesitant about
\nmaking under-hand transactions and blatantly ignore laws and
\nregulations when undertaking their duties.<\/p>\n
The Megawati administration does not seem to realize such
\nbehavior easily leads to (i) the inefficiency of private
\ncompanies, (ii) more hurdles for policy makers in designing
\nstrategies to reengineer the behavior of businesses, (iii) the
\nmarket's lack of respect for state bureaucrats.<\/p>\n
Patrick ventured a proposal to resolve the inefficiency
\nproblem in state and privately owned utilities. He said each type
\nof service should be evaluated to determine whether maintaining
\nor granting monopolies was in the country's best interests.<\/p>\n
Some services and products, if allowed to compete freely and
\nhonestly, he said, were best left to private entrepreneurs --
\nthis competition provided free-market control over price gouging
\nand encouraged improvement and ongoing research and development
\nin an effort to maintain a competitive edge.<\/p>\n
While conceptually his idea is accurate, it is more of a
\ntheoretical approach towards better management by use of the
\nmarket mechanism. However, his approach is not new, it was
\napplied right after the New Order stepped down and was replaced
\nby the Reform Order in 1999. These reformists have been
\nintroducing new laws in the spirit of free market competition
\never since.<\/p>\n
The landmark law was the enactment of Anti-Monopoly Law
\nNo.5\/1999 in March, 1999, which was subsequently followed by
\nseveral new laws which are antimonopolistic in nature.<\/p>\n
When we take a close look at Law No.20\/2002 on Electricity,
\nthe role of the private sector, including foreign participation,
\nis wide open. This is a revolutionary change.<\/p>\n
The enactment of this law is a clear signal Article 33 of the
\nConstitution (stipulating the state shall control vital
\nresources) is now loosely interpreted, thereby enabling private
\nparticipation in vital industries.<\/p>\n
The new law on electricity encourages market competition in
\nthe electricity sector through the unbundling of the state
\nelectric company, Perusahaan Listrik Negara (PLN), into
\nfragmented players -- retailers, distributors, wholesalers,
\nmarket operators, system operators and power generators.<\/p>\n
This unbundling process will be a key factor towards the
\napplication of market mechanisms to remove monopolistic behavior
\nand create competition.<\/p>\n
To accommodate the principle of accountability, transparency,
\nand independence in the management of state utilities, Indonesia
\nhas also passed the Law on State Owned Companies (BUMN) No.
\n19\/2003, although it does has loopholes which can be abused by
\ncompany directors.<\/p>\n
However, perhaps the most urgent issue in improving the
\nperformance of state utility employees is redefining the
\nperformance standards of the state auditor, the Supreme Audit
\nAgency (Bepeka).<\/p>\n
To my knowledge this agency is endeavoring to increase
\ncapacity and to improve good corporate governance, performance
\naudits, risk based audits, fraud audits, policy evaluation, human
\nresource assessment and information technology.<\/p>\n
We desperately need performance evaluation along with a reward
\nand punishment system. We need to map human resources to evaluate
\nand identify workloads so workers can be evenly distributed. Each
\nemployee should be motivated to perform and understand the
\nconsequences of failing to comply with standard practice.<\/p>\n
Finally, I strongly hope the next elected government of 2004
\nwill effectively encourage high quality professional management
\nand legal enforcement.<\/p>",
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