Government changes privatization strategy

Government changes privatization strategy

JAKARTA (JP): After a poor debut late in March, the government
has decided to change its 2001 privatization program strategy by
focusing on strategic sales.

Director General of State Enterprises I Nyoman Tjager said
that the current market condition was not favorable for selling
state-owned companies through initial public offerings (IPOs).

"Under the current situation, it is better if (the
privatization program) is implemented via a strategic partner
(strategic sales method)," Tjager told legislators during a
hearing between the Ministry of Finance and the House of
Representatives Commission IX for the state budget and finance
last week.

He pointed out as an example that fertilizer producer PT Pupuk
Kaltim, which was initially planned to be sold through an IPO,
should be privatized instead by selling 30 percent to 40 percent
of its shares to a strategic partner.

"Initially, we planned for an IPO. But looking at the current
difficult market condition, it would be better via strategic
sales. When things improve, we can sell more shares through IPO,"
he said.

He added that the privatization program for the remaining
state enterprises would be carried out through private placement
to strategic investors.

The government plans to privatize some 16 state enterprises
this year in a bid to raise around Rp 6.5 trillion (US$570
million) in cash to help plug the 2001 state budget deficit.

But the initial response of investors to the country's
privatization program was disappointing as evident by the poor
performance of the 20 percent IPO of pharmaceutical company PT
Indofarma late in March. The relatively poor debut raises
concerns that the government may fail to meet the privatization
proceeds target.

"The (Indofarma) result was disappointing ... The response was
not good," Tjager said.

He added that the government planned to sell another 29
percent of Indofarma via strategic sales later this year.

Experts have said that stock market investors have been
particularly jittery over increasing political instability in the
country. Embattled President Abdurrahman Wahid is facing growing
pressure to step down, which some say could result in clashes
between the opponents and supporters of Abdurrahman.

The remaining state enterprises slated for privatization this
year include property firm PT Wisma Nusantara, pharmaceutical
company PT Kimia Farma, surveyor company PT Sucofindo, plantation
firm PTPN III, retailer PT Sarinah, oil palm plantation firm PT
Socfindo, coal mining company PT Tambang Batubara Bukit Asam,
steelmaker PT Krakatau Steel, Bank Mandiri, airport operator PT
Angkasa Pura II, cementmaker PT Semen Gresik and
telecommunications firms PT Indosat and PT Telkom. The government
will also divest its ownership in private cementmaker PT
Indocement this year.

Tjager said that the government planned to sell all of its 42
percent share in Wisma Nusantara, which operates an office
building in a prime area in Jakarta, to its Japanese partner in
the firm.

He said that the government was planning to sell shares in
Sucofindo to the company's foreign partner, which currently holds
a 5 percent stake.

He said that concerning PTPN III, the government planned to
sell less than 50 percent of the company, possibly to a strategic
partner.

He added that on Socfindo, the government planned to sell its
40 percent share to the company's foreign partner.

Tjager said the government would divest all of its 25 percent
ownership in publicly listed PT Indocement to Germany's
Heidelberger Zement AG, which already owns more than 61 percent
of the company.

Challenges

Legislators have challenged the government's new privatization
program strategy.

"The strategic sales method is not transparent," said
legislator Paskah Suzetta.

Paskah also urged the government not to sell strategic state
enterprises, including fertilizer and cement companies, to
foreign investors.

"The government must not only think of the short-term
interest, but also of the long-term," he said, adding that
domestic investors such as pension funds and insurance companies
should be encouraged to invest in the country's privatization
program.

"I agree with Paskah," said Hengky Baramuli, pointing out that
the country would face new problems if strategic companies were
controlled by foreigners.

"The government must also first seek approval from the House
before selling any state asset ... We don't want the Guthrie case
to reoccur," he added, referring to the recent controversial sale
of plantation firms controlled by the Indonesian Bank
Restructuring Agency (IBRA) to Malaysia's Kumpulan Guthrie Bhd.
(rei)