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)