Sat, 12 Aug 2000

Government to launch new special audits on state firms

JAKARTA (JP): The government said on Friday it was preparing to launch a second round of special audits of state firms as part of its agreement with the International Monetary Fund.

The special audits will be of publicly listed telecommunication firm PT Telekomunikasi Indonesia; toll road operator PT Jasa Marga; port operator PT Pelindo II; plantation firm PT Perkebunan Nusantara IV; and national airline PT Garuda Indonesia.

The deputy for supervision and control at the State Ministry of Investment and State Enterprises Development, Soeroso, said the government was currently in the process of selecting five auditors from approximately 25 international auditors bidding for the jobs.

"We expect to finalize the tender this month to determine the five independent auditors," Soeroso said during a media conference.

He said the government expected the audits to be completed by Dec. 31, after which it would publicly announce the findings.

The five state firms were selected by the Ministry of Finance, with each firm representing a different industry, he added.

He said that the special audits were part of the restructuring of the state firms, a process hoped to increase the value of the companies for the privatization program.

The recently signed letter of intent (LoI) with the IMF requires the government to audit the five state firms as part of its program of economic reforms.

Compliance with the LoI is a prerequisite to obtaining the US$5 billion in promised loans from the IMF.

The first round of special audits took place last year, and covered state oil and gas company Pertamina, state electricity company PLN and the State Logistics Agency (Bulog).

Independent auditor PricewaterhouseCoopers found losses totaling $4.69 billion at Pertamina between 1996 to 1998. The auditor said the losses were caused by inefficiency, loss of income opportunities and future obligations.

Auditor Arthur Andersen said unfavorable business contracts, irregularities and weak supervision caused Bulog losses of Rp 6.7 trillion ($807 million) between 1993 and 1998.

Concerning PLN, it found an average loss of Rp 5.26 trillion per year between 1996 to 1998 due to inefficiency in the company's investments and operations.

The findings formed the foundations for Pertamina, PLN and Bulog's restructuring programs.

Soeroso said the upcoming audits would be conducted by local auditors who were affiliated with international auditors.

By law, foreign auditors cannot establish a company here unless they team up with a local partner.

He said the government planned more special audits next year, with a target of 30 state firms.

"The goal is to increase transparency and that will increase the value of the state firms when we privatize them," he explained.

He said transparency was one of the three principles of good corporate governance, along with independency and accountability.

Soeroso said independently audited state firms that were also practicing good corporate governance would have a higher value in the eyes of investors.

According to him, investors are willing to pay a premium of between 11 percent and 20 percent for state firms that practice good corporate governance.

Meanwhile, the deputy for logistics and tourism, Budi Susetyo, said the independent audit of Garuda Indonesia was requested by international creditors of the state firm.

"They want a second opinion on the company aside from the audit by local auditors," he said.

Garuda owes a total of $1.8 billion to several international creditors following severe operational losses between 1996 to 1997 that resulted in the company suffering a negative equity of $300 million.

Garuda has said it will take 35 years to fully repay its debt. (bkm)