Govt still confident about privatization

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.