Government to issue regulation on management of SOEs

Government to issue regulation on management of SOEs

Rendi A. Witular, The Jakarta Post, Jakarta

The government will soon issue a regulation on the formation
of a holding company that will oversee poorly managed state-owned
enterprises (SOEs), as part of efforts to help restructure and
revitalize them, a minister said.

State Minister of Administrative Reform Taufik Effendi said
the plan to form the holding company was confirmed and that
President Susilo Bambang Yudhoyono was expected to sign the
necessary regulation.

"We have finished preparing the necessary legal framework for
setting up the holding company. We expect the president to sign
it soon," said Taufik after a meeting with State Minister of
State Enterprises Sugiharto on Monday.

Taufik explained that after the President signed the
regulation, his office, along with officials from the state
enterprises office would start forming the structure and
selecting people to run it.

The holding company will likely be called the SOE Managing
Agency, functioning more or less similar to the Singapore
government's investment arm, Temasek Holdings.

The agency will act on behalf of the government in managing
SOEs, with authority to select top executives and commissioners
of SOEs, prepare business guidelines for the SOEs and approve
corporate action plans.

If the plan goes forward as expected, executives of the
holding company will be in charge of managing some 157 companies,
with combined assets of more than Rp 1.2 quadrillion (about
US$133 billion).

The most daunting aspect of the plan is that most of the
companies have been poorly managed for such a long time and now
suffer from very low rates of return on investment and equity due
to the intervention of vested political interests, which often
use the SOEs as cash cows for political parties.

Taufik said in order to function effectively and help generate
more profit from the SOEs, the agency was expected to have a very
large structure with numerous executives overseeing each business
sector.

"A 'fat' organization will not matter as long as it brings
more profit for the state," said Taufik, adding that the
government had not yet decided whether the agency would be
directly responsible to the State Minister of State Enterprises
or the President.

This statement was seemingly in contradiction to a previous
move by Taufik's office which rejected a proposal from State
Minister of State Enterprises Sugiharto on the structure of the
agency because it included too many executive posts, a condition
that may make the agency itself overly inefficient.

The idea of forming such an agency was first laid out by
former state minister for state enterprises Tanri Abeng, who was
the first minister to be specifically charged with reforming
state companies during the twilight of the Soeharto regime in
1998.

Tanri at that time proposed the establishment of a state
holding company to manage all SOEs, however, before he was able
to realize his plan, Soeharto decided to resign after widespread
disturbances and student protests.

Sources at the Office of the State Minister of State
Enterprises said that Tanri, who is a close aide to Vice
President Jusuf Kalla and is currently the president commissioner
of state-owned telecommunications company PT Telkom, had been
ordered by Kalla to advise Sugiharto about the formation of the
holding company.