Govt still confident about privatization

A'an Suryana, The Jakarta Post, Jakarta

Despite mounting obstacles, caused by domestic and international factors, and the weak performance in the first semester of the year, the government is still optimistic to reach its privatization target this year.

"We are still optimistic. But, we have to work really hard to accomplish the target," Mahmudin Yasin, Deputy State Minister for State Enterprises, told The Jakarta Post.

The government hopes to collect some Rp 6.5 trillion (about US$722 million) this year from the sale of its stakes in 25 state enterprises to help cover the state budget deficit.

The government also hopes to collect another Rp 10.35 trillion in dividends from all state enterprises.

According to Yasin, the government still optimistic, as it has a "trump card" which should reap hefty earnings in the second half of the year and finally reach the privatization target. The trump card is a number of blue chip enterprises.

"The achievement of the target greatly depends on the sale of (property firm) PT Wisma Nusantara International, (telecommunication company) PT Indosat, pharmaceutical companies, (coal mining company) PT Bukit Asam and (airport operator) PT Angkasa Pura II," said Yasin.

These state enterprises should have been privatized last semester, but the process was postponed to this semester for several reasons, including low bidding prices offered by investors.

From the Indosat sale alone, the government expects to reap Rp 3.5 trillion. Indeed, Indosat and another telecommunications company PT Telekommunikasi Indonesia (Telkom) may well be the prime cash cows in the privatization drive. For example, the recent sale of a 3.1 percent stake in Telkom has provided the government with Rp 1.13 trillion in fresh funds.

However, many analysts are now pessimistic that the government will be able to achieve their goals.

First, analysts say, a string of financial scandals in the U.S. has caused jitters among investors worldwide and slumps in global stock markets for weeks.

The share prices of domestic listed firms, including Indosat and Telkom, fell following the global stock downfall.

Also, analysts believe foreign investors still do not have much interest in Indonesia given the prevailing legal uncertainties. Investor distrust in the country's legal system has been aggravated by a recent controversial case, where financially-sound Canadian insurance firm PT Manulife was declared bankrupt by a local court at the request of a former local partner.

In addition, certain people here are still resistant to any privatization plan.

For example, the Ministry of Health has objected to the Ministry of State Enterprises' plan to sell the government's controlling stake in pharmaceutical companies PT Indofarma and PT Kimia Farma, saying that both companies produce cheap generic medicine, which are badly needed, by the average person.

Such a resistance reminds many of the staunch resistance by West Sumatran officials against the planned sale of cement maker Semen Padang last year.

In fact, as of July 30 this year, or five months before the deadline, the government failed to perform in its privatization process.

The government only managed to collect Rp 2.1 trillion in earnings or 32 percent of the 2002 goal of Rp 6.5 trillion.

Worse still, the government was only able to collect Rp 2.62 trillion or 25.31 percent out of the annual dividend target of Rp 10.35 trillion in the period.

Yasin acknowledged that the government was facing daunting challenges, but, he quickly added that the target was still achievable.

"The global market slumps will no doubt have an impact on Indonesia. After all, our state enterprises do not have any window dressing like some of the corporations in the U.S. such as Worldcom, Enron etc.

"Market perception, which is manifested in the stock prices, is still bad for our state enterprises. But actually the current weak prices of their shares do not reflect their real value," he said.

Recognizing the challenges, the first thing for the government to do is to convince investors that the state enterprises are healthy and profitable, and it is safe and profitable to invest to in Indonesia.

"The point is that we have to honestly promote the values of the state enterprises, by extensively communicating to the market about the privatization process, completing internal restructuring in the state enterprises and focusing that more on business core," he said.

As far as Indofarma and Kimia Farma are concerned, Yasin said that the government was still committed to selling its 51 percent stakes in both firms, but it would push any potential investors to agree on terms obliging them to continue producing generic drugs after taking over the firms.

Minister of State Enterprises Laksamana Sukardi underlined that transparency was necessary to attract investors.

"Transparency, from the appointment of tender advisors to the execution of a tender, is needed to prevent adverse practices such as insider trading, which has caused legal uncertainty in business," said Laksamana in a paper presented in a seminar.