Government plans to privatize 25 state firms

Government plans to privatize 25 state firms

By Reiner S.

JAKARTA (JP): The government plans to privatize 25 state-owned
companies in the 1999/2000 fiscal year to help finance the
country's escape from the 17-month old economic crisis, according
to the blueprint document for the restructuring of the 144 state-
owned companies.

Some 90 state-owned companies operating in various economic
sectors have been listed as candidates for privatization,
including five which had been scheduled for privatization in the
1998/1999 fiscal year until unfavorable market conditions forced
the postponement of the plan.

There are also some 64 companies that require extensive
restructuring prior to privatization, which will delay their
privatization until the following fiscal year.

The decisions on how and when to proceed with restructuring
has not yet been finalized, the government said. Restructuring is
aimed at increasing the value of the companies through such
measures as downsizing, merging and creating an explicit
regulative and competitive environment.

The government explained that the precise outcome of the
privatization program is hard to determine because it has no
control over the decisions of investors, the state of stock
markets at home or abroad and the myriad decisions that must be
made before a transaction can be completed.

The time needed to build a consensus on the restructuring of
any one company prior to privatization is also a variable, the
government added.

"Given the uncertainties mentioned, and bearing in mind that
the power of the State Minister of the Empowerment of State
Enterprises, while expanding, is limited, the government plans,
with the assistance of financial and other advisers, to achieve
the divestiture of 25 companies in 1999/2000, and 35 the
following year," according to the blueprint document, recently
unveiled to the public by State Minister of the Empowerment of
State Enterprises Tanri Abeng.

"It is, obviously, not possible to proceed with the
privatization of all companies simultaneously. If readers of this
master plan, who may be interested in acquiring shares in a
state-owned company, find that the time indicated is too distant,
they are welcome to write to the State Ministry of the
Empowerment of State Enterprises and express their interest ...
the ministry will be glad to advance the preparations for the
sale of companies in which there is active and suitable investor
interest," read the 142-page document, which was jointly prepared
by foreign and local experts.

First group

The first group of state-owned companies that will be
privatized during the period between April 1999 to March 2000
will be the five companies which were slated for divestiture in
the last fiscal year. These companies are the coal mining
operation PT Tambang Batubara Bukit Asam, toll road company PT
Jasa Marga, steel maker PT Krakatau Steel, publicly listed
domestic telecommunications company PT Telkom and tin mining
company PT Tambang Timah.

The government said that given both the needs of the companies
for strengthened international links, management and markets, and
the weakness of stock markets, the preferred route to
privatization would be to introduce a strategic foreign partner
to take a significant minority ownership position. Further share
flotations would be considered at a later date.

The government explained that the privatization process for
infrastructure companies like Telkom and Jasa Marga may be
delayed due to the time needed to design new regulatory
mechanisms that would address the issues of who would determine
tariffs, how these tariffs would be determined and the likely
degree of competition in the industries from existing companies
or new entrants.

"The design of regulatory mechanisms that balance the
interests of the nation, consumers and investors is being speeded
up by the privatization process, but it could cause
implementation delays," according to the blueprint document.

The second batch of companies that could be privatized may
come from companies grouped in the trade, construction,
consultant engineering, fertilizer manufacturing and banking
sectors.

Five companies in the trade sector, PT Dharma Niaga, PT Pantja
Niaga, PT Cipta Niaga, PT Kerta Niaga and PT Bhanda Ghara Reksa,
had combined assets in 1997 of Rp 1.27 trillion and could be
merged prior to privatization. This move would give the
management of the companies an option to buy the new entity. This
management buy out option is possible because the companies
greatest assets are their management expertise.

This process may exclude transportation and warehouse firm
Bhanda Ghara Reksa, which will begin to focus on fertilizer
distribution and, possibly, be sold to a strategic investor.

Nine companies in the construction industry, PT Adhi Karya, PT
Pembangunan Perumahan, PT Wijaya Karya, PT Hutama Karya, PT
Waskita Karya, PT Nindya Karya, PT Istaka Karya, PT Amarta Karya
and PT Brantas Abipraya, with combined assets of Rp 4.51
trillion, may also be merged prior to privatization.

The government said that the nine companies have great
expertise and experience in their field but have been battered by
the current economic recession. Forming a joint venture operation
with a multinational construction company could also be an
alternative for the companies.

Engineering firms

The same scenario may be applied to five engineering
consultant firms and two special consultant firms, PT Indah
Karya, PT Indra Karya, PT Virama Karya, PT Yodya Karya, PT Bina
Karya, PT Rekayasa Industri and PT Konservasi Energi, with
combined assets of Rp 270.55 billion. A management buy out is
also an option for these firms.

Six fertilizer manufacturing firms, PT Pupuk Sriwijaya, PT
Pupuk Kaltim, PT Pupuk Iskandar Muda, PT Asean Aceh Fertilizer,
PT Petrokimia Gresik and PT Pupuk Kujang, with combined assets of
Rp 8.89 trillion, could be merged before being sold to strategic
investors through an initial public offering.

The merger of four state banks had been started and was
expected to be completed two years before they are privatized.
Bank BBD, Bank Bapindo, Bank Exim and Bank BDN will form a new
entity called Bank Mandiri.

Other companies which will begin the restructuring process in
the 1999/2000 fiscal year in preparation for privatization later
in the year include airport operator PT Angkasa Pura I with
assets of Rp 2.24 trillion, port operator PT Pelindo I with Rp
1.17 trillion in assets, plantation company PT PN III with assets
of Rp 1.06 trillion and salt maker PT Garam with assets of Rp
251.18 billion.

The government had also identified some 21 companies which may
only need minor restructuring before privatization. These include
soda producer PT Industrial Soda Indonesia, retailing unit PT
Sarinah, construction and distribution firm PT Mega Eltra, cargo
and shipping company PT Varuna Tirta Prakasya, cargo and
passenger shipping company PT Pelayaran Bahtera Adiguna, dredging
and land reclamation company PT Pengerukan Indonesia, paper
manufacturer PT Kertas Padalarang, pulp and paper maker PT Kertas
Letjes, cement paper bags maker PT Kertas Kraft Aceh, audio
recording services PN Lokananta, textile makers PT Industri
Sandang I, PT Industri Sandang II, PT Cambrics Primissima, book
printing unit PT Pradnya Paramita, cement maker PT Semen
Baturaja, natural asphalt producer PT Sarana Karya, glass
manufacturer PT Industri Gelas, air survey and mapping firm PT
Survey Udara Penas, multifinance and leasing unit PT Pann Multi
Finance, power distribution transformer PT Unindo and property
and hotel operation PT Perhotelan and Perkantoran Indonesia.

The government also decided that the privatization process of
state electricity company PT Perusahaan Listrik Negara, airline
firms PT Garuda Indonesia and PT Merpati Nusantara Airlines, gas
producer PT Perusahaan Gas Negara, trading and telecommunications
equipment maker PT INTI, aircraft maker PT IPTN and trading and
manufacturing operation PT RNI will be done after 2001 because
the complicated restructuring of these companies will demand a
longer period of time.