Economist: Streamlining of SOEs Must Create Added Value for the State

Economist from the University of Indonesia (UI) Toto Pranoto has reminded that the success of the streamlining agenda for State-Owned Enterprises (SOEs) depends heavily on the ability to create value, both for the companies themselves and for the state. Therefore, according to him, the success of consolidation cannot be measured solely by short-term efficiency. He stated that the most crucial aspect is ensuring the process of merging similar companies can create added value. Toto, as per a statement received in Jakarta on Monday, cited several past consolidation cases that actually resulted in a decline in company value, or value destruction, because the post-merger integration process did not run optimally. For this reason, according to Toto, preparatory stages such as due diligence, the formation of a project management office (PMO), and the execution of post-merger integration must be carried out comprehensively. In general, Toto assessed the plan by Danantara Indonesia to streamline the number of SOEs and their subsidiary entities from around 1,077 to approximately 300 companies as a strategic move to strengthen the competitiveness of state corporations. He believes this SOE streamlining agenda is a proper effort to improve the efficiency and competitiveness of state-owned companies. ‘If now the President says that from around a thousand it will be made into only about 300, of course the context is an effort to strengthen the competitiveness of the SOEs,’ said Toto. He also viewed that merging similar companies allows for a reduction in the cost structure through the integration of goods and services procurement, shared use of supporting facilities, and optimisation of company resources. ‘With a lighter cost structure, then automatically the bottom line or profit figures can also increase,’ Toto said. It was previously reported that Danantara Chief Operating Officer (COO) Dony Oskaria stated that his party is currently streamlining the number of SOE entities from 1,077 companies to around 200-300 companies, targeted for completion by 2026. According to Dony, President Prabowo Subianto has given a directive that the SOE transformation must not harm workers. He explained that the streamlining is being carried out to address the high number of inefficient and loss-making companies. Of the current total of 1,077 companies, about 52 per cent are reportedly loss-making, with accumulated losses reaching Rp20 trillion. Nevertheless, Danantara has chosen to retain the entire workforce after calculating the financial impact of the consolidation process. According to Dony, the savings generated from the consolidation process are far greater than the costs required to retain all employees. Besides ensuring there are no layoffs, Dony revealed that the SOE streamlining programme has the potential to generate direct savings of up to Rp50 trillion per year. According to him, there have been practices of layered transactions between parent companies, subsidiaries, and sub-subsidiaries that cause significant inefficiencies.