Government plans to sell unprofitable SOEs

Government plans to sell unprofitable SOEs

Rendi A. Witular, The Jakarta Post/Jakarta

As part of the major restructuring of all state-owned
enterprises (SOEs), the new government plans to sell or close
those considered to be in bad shape and with no business
prospects, according to a senior official.

Mahmuddin Yasin, deputy for privatization at the Office of
State Minister of State Enterprises, said the policy was part of
the government's planned "SOEs blueprint" aimed at efficiently
managing state companies for the next five years.

"SOEs with poor performance, a lack of business prospects and
have no public-service obligations will no longer be maintained
by the government. They will either be sold or shut down," said
Mahmuddin.

He explained that SOEs that were still considered to have
business prospects but poorly managed would undergo a
restructuring program by merging them or injecting fresh capital
from public investors.

Many of the country's SOEs have been poorly managed for a long
time and suffered very low rate of return on investment and
equity due to intervention by vested political interests, which
have often treated the SOEs as cash cows.

The previous government of Megawati Soekarnoputri planned to
shut down or merge a number of poorly managed SOEs, including
forestry firm PT Inhutani I to V, railway construction firm PT
Inka, paper firms PT Kertas Leces and PT Kertas Kraft Aceh,
fertilizer firm PT Pupuk Sriwidjaja, shipping firm PT Pelni and
aircraft maker PT Dirgantara Indonesia.

However, the administration has thus far only merged trading
companies PT Pantja Niaga, PT Dharma Niaga, PT Cipta Niaga, PT PP
Berdikari and PT Sarinah; and construction consultancy firms PT
Virama Karya, PT Indah Karya, PT Indra Karya, PT Yodya Karya and
PT Bina Karya.

It decided last month to close down PT Aceh Asean Fertilizer,
although a final decision has yet to be made by the new
government and the governments of the Philippines, Singapore,
Thailand and Malaysia, as investing partners in the firm.

SOEs with public-service obligations have also been a victim
of mismanagement. Most of the companies have been forced to
provide public services without sufficient facilities and
subsidies from the government.

The companies have been forced to make a profit, causing the
public to bear expensive costs to use their services. Among these
companies are electricity firm PT Perusahaan Listrik Negara, oil
and gas company PT Pertamina, postal and courier firm PT Pos
Indonesia, railway firm PT Kereta Api Indonesia, bus companies PT
PPD and Perum Damri, and a number of hospital and seaport
operators.

Mahmuddin said SOEs with public-service obligations, which
were mostly in poor condition, would be maintained by providing
them with subsidies and other facilities that could support the
continuity of their operation.

"SOEs with public-service obligation will be restructured by
the government to efficiently serve the public. In the SOEs
blueprint we will clearly define and separate such companies from
those of profit-oriented SOEs," said Mahmuddin, who was involved
in drafting the blueprint and is likely to be reappointed again
as a deputy to the minister.

Under the planned blueprint, the new government is also
planning to form a holding company that it is hoped would be more
efficient in overseeing SOEs, similar to Singapore's government
investment arm Temasek.

If the plan is realized, executives of the holding company
will be in charge of managing 162 companies, with combined assets
of more than Rp 700 trillion (about US$77 billion).