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.