Govt needs to campaign hard on privatization

Sri Wahyuni, The Jakarta Post, Yogyakarta

The government has targeted reaping Rp 8 trillion from asset sales to the private sector for the 2003 fiscal year, which seems a tall order considering the government's track record. The following is excerpts of an interview with Tony Prasetiantono of Gadjah Mada University, who is studying privatization for his doctorate at The Australian National University in Canberra.

Question: How do you see the new privatization target?

Answer: The target of Rp 8 trillion is obviously too high. Even for this year's (2002) target of Rp 6.5 trillion, the State Minister of State Owned Enterprises Laksamana Sukardi said that up to the first semester only Rp 2 trillion was received.

The target of privatization revenue for both this year and next year will be very hard to achieve. Besides, there are deadlocks in some cases including (the privatization of) PT Semen Gresik and its subsidiaries PT Semen Padang and PT Semen Tonasa.

Q: How will that deadlock be overcome?

A: Semen Gresik's privatization needs careful handling. Fortunately the IMF (International Monetary Fund) and Cemex have an understanding about this sensitive issue. The image of our investment is not automatically damaged because of the delay. In other developing countries, privatization often faces unpredictable obstacles. Nationalism has been the standard argument for refusing privatization everywhere.

The government should not tire in opening opportunities for dialog with parties resisting privatization. The problem isn't only economic calculations. They are against privatization because of cultural and historical considerations.

So, once more, we should be very careful in handling Semen Padang. If we force it, it will be counter productive. Besides, both the IMF and Cemex do not force the sale. However, we should go on with the sociological approach. The government, at least, should seek voluntary acceptance to the privatization of Semen Padang.

Q: What's the prospect of the sale of three more state-owned enterprises, namely BRI (bank), Adhi Karya (contractor), and Pembangunan Perumahan (developer)?

A: BRI is very attractive because of its vast nation-wide network (with branch offices throughout the country). However the experience of IBRA (Indonesian Bank Restructuring Agency) in selling Bank Niaga, did not run smoothly, so I'm doubtful whether BRI will attract many investors.

Selling it through IPO (Initial Public Offering) or offering it through the stock market will be the right way to sell state- owned banks such as BRI and Bank Mandiri. However, it should also be conducted very carefully.

The government may need to use the strategy once used in selling Bank BNI which was successful, through its first IPO in New York. Just test the market with, for example, 10 percent of the shares. Then if successful, offer another 10 percent.

We need to be careful with the price. Avoid offering a large amount of shares, like 30 percent, as it will receive no response from the market. It will make the price fall. This is what happened to Bank Niaga. The bid was very low, only Rp 25 per sheet of shares although IBRA wanted to sell them for Rp 30. The amount of the offered shares should be reduced to leave a chance for the investor to improve the price.

When BCA was released, IBRA wanted to sell a large amount of shares with a lesser price. Try to sell them in small amounts (for example 10 percent), and we could sell each of the shares at higher prices.

Adhi Karya and Pembangunan Perumahan have a good chance, especially as the construction sector has shown signs of getting back in business. Besides the property sector is also getting up, and the sector tends to be competitive.

Q: Is the government's capability adequate now to conduct privatization?

A: The dilemma is that public companies with sale value are good public companies, and it is a pity to sell them, while no one wants to buy bad public companies.

The formula would be privatization plus deregulation equals efficiency. If privatization is conducted blindly, it will result in monopolies by investors who are new owners of the public companies. I welcome the policy to stop PT Telkom's monopoly in the telecommunication business by letting in PT Indosat as a competitor. Efforts to deregulate the telecommunication sector will speed up efficiency, which will also benefit consumers.

Q: What about those who believe privatization will only shift monopolies from the state to private businesses?

A: I would also resist privatization if it only shifts ownership from the state to private businesses; they would monopolize public companies and it would be the people who suffer the most. All studies on privatization always conclude that mere privatization is not enough. It should be accompanied with deregulation to enable more competition. That's why, before Telkom is privatized, a competitor is given -- Indosat. I hope this will be the pattern for privatization.

Q: What are the pluses and minuses of privatization?

A: The plus is that privatization will push former public companies into healthier companies, leading to lower prices of their products and preventing them from being robbed by government officials, politicians and rent seekers. The minus side is the layoffs aimed to improve efficiency and profits.

Q: What should be done in the current situation?

A: Discourse on privatization is based only on partial understanding. Selling public companies is "unnationalistic" and "unpatriotic". Some also say that privatization aimed to fill in the state budget deficit is a mistake. Others say privatization is only done "to make the IMF happy".

Another argument says that privatization is a product born from globalization, which we can only follow. But we cannot must label privatization as an "IMF program", "a result of IMF pressure", "the effect of globalization", "to fill in the state budget deficit", or consider it as "a non nationalistic action". The urgency of privatization was incited by simultaneous motivation and not just partial reasons.

The State Ministry of State-Owned Enterprises has to make people understand the privatization of public companies. Its success in many countries followed the hard work of governments in convincing their people. Only with intensive campaigning will people really understand its essence and urgency.

What has emerged are only partial comments ... As a result, privatization easily results in "enemies". It's the task of Laksamana Sukardi's office to convince the community and give a complete perception about privatization of public companies.