Mon, 19 Jul 2010

Indonesian Government Infrastructure Investment Fund On Hold Over Legal Questions

by Faisal Maliki Baskoro

A plan by the State-Owned Enterprises Ministry to create an investment fund that would help finance infrastructure projects and the expansion and restructuring of state enterprises has stalled as senior officials question the details of the scheme.

Mustafa Abubakar, the minister for state-owned enterprises, said on Friday that the ministry was pushing ahead with the fund, which he said would play a pivotal role in providing an alternative source of funding for state enterprises and infrastructure development. He previously said it could eventually evolve into a sovereign wealth fund.

“The scheme was scheduled to be established on June 30,” he said. “It has been delayed until further notice because there hasn’t been any [discussion] with the Finance Ministry or the Coordinating Ministry for the Economy. We’re still waiting for their responses.”

Hatta Rajasa, the coordinating minister for the economy, told the Jakarta Globe on Friday that his ministry was still studying the benefits of the SOE Ministry’s proposal.

“If it is going to be as effective as they say, then we will support it. But if not, then we won’t,” he said.

Ekoputro Adijayanto, a special adviser to Mustafa, said the fund would have start-up capital of Rp 40 trillion ($4.44 billion), coming mainly from Danareksa Capital, a new company that will be assigned by the ministry to manage the government’s minority shares in nine SOEs.

Ekoputro said Danareksa Capital would use those minority shares, valued at about Rp 13 trillion, as collateral for loans to help finance the fund initially.

However, a senior source at the SOE Ministry warned that due diligence and comprehensive feasibility studies had yet to be carried out for the proposal, and that the fund currently lacked a legal basis.

“The ministry can’t ask its companies to allocate funds to the scheme. That would mean the ministry was meddling in its companies’ internal business affairs. The same thing goes for using minority assets as collateral,” said the source, who requested anonymity. “This is a debate that has been going on for a very long time. It is hampered by legal issues as well as what form this scheme should take.

“To establish a scheme like this requires a government regulation in lieu of law, which in turn requires comprehensive discussion at the cabinet meeting. This discussion is not progressing at the cabinet level.”

The SOE Ministry has said that brokerage PT Danareksa, the parent company of Danareksa Capital, would be the lead operator of the fund. Its partners would be brokerages PT Danareksa Sekuritas, PT Bahana Securities and PT Mandiri Sekuritas, state-owned asset management company PT Perusahaan Pengelola Aset and Jamsostek Investment Corporation, a planned unit of state insurance company PT Jamsostek expected to be established soon.

But the SOE Ministry source said it remained unclear precisely which companies would contribute how much.

Additional reporting by Irvan Tisnabudi