Mon, 11 Sep 2006

From: JakChat

By riccardo
An old expression comes to mind: something about throwing good money after bad...

Sat, 09 Sep 2006

Government will inject more than Rp 2 trillion into ailing state firms

The Jakarta Post, Jakarta

The government plans to provide Rp 2.19 trillion (US$241 million) from this year's state budget for several troubled state-owned enterprises (SOEs), but officials insist they are not handing out blank checks.

Muhammad Said Didu, secretary to the State Minister for State Enterprises, said the SOEs must provide concrete business plans for the use of the funds. He added the companies will be held accountable.

"The funds are to help make the state companies financially healthy, and are not simply bail-out funds," he told reporters Friday.

Said added that the managements of national flagship airline Garuda Indonesia and pioneer airline Merpati Nusantara will be required to come up with concrete plans to settle their companies' mounting debts, which have put the two state-owned carriers on the verge of bankruptcy.

"We will discuss and work closely with them on how they will restructure the debts with their creditors," he said.

The House of Representatives' Budget Committee and the government earlier this week agreed to set aside so-called "state equity participation" funds for 15 SOEs as part of a mid-year revision of the 2006 state budget. The bulk of the funds will go to Garuda and Merpati.

Garuda will receive Rp 1 trillion, half of it to be disbursed immediately and another half later next year, after the airliner has settled all liabilities and asset transfers arising from the debt restructuring scheme.

A special-purpose entity or the government's Asset Management Company (PPA) will take over $644 million of Garuda's $794 million total debts, along with six of its aircraft. Garuda will then repay within 10 years.

Merpati will receive similar treatment for its debt of Rp 1.7 trillion. It will get Rp 450 billion in funds.

Disbursements will also go to Aceh province's PT Kertas Kraft Aceh (Rp 300 billion), fertilizer producer PT Pupuk Iskandar Muda (Rp 150 billion), state railway operator PT KAI (Rp 100 billion), Bandung-based aircraft manufacturer PT Dirgantara (Rp 40 billion) and Jakarta's chronically failing bus company PT PPD (Rp 40 billion).

The state equity participation funds will be financed through this year's planned Rp 3 trillion SOE privatization program. Said added that the government is still expecting to put 5 percent of state gas utility PT PGN up for sale by the end of the year.

The House's National Mandate Party faction says a concrete restructuring plan for Garuda and Merpati is a must, or it cannot support the government aid scheme. The House is likely to approve the revisions to the 2006 state budget, however, in its next plenary session later this month.

Finance Minister Sri Mulyani Indrawati has previously disagreed with State Minister for State Enterprises Sugiharto about providing funding or government guarantee schemes for Garuda and Merpati, arguing it would set a bad precedent encouraging financially-troubled SOEs to come to the government for a bailout.

Many SOEs suffer from poor and/or corrupt management, but some are also burdened by their public service obligations.