Indonesia pledges better corporate governance in SOEs

SANUR, Bali (JP): The government vows to improve corporate governance in state-owned enterprises (SOEs) in a bid to boost their performance and help ensure successful privatization programs.

The deputy minister for restructuring and privatization at the Office of the State Minister of Investment and State Enterprises Development, I Nyoman Tjager, said the government would issue a new ruling by the end of the month covering corporate governance reform, and a new set of guidelines to ensure a transparent privatization process.

"We realize other countries have been hurt less (by the regional economic crisis) and have recovered more quickly partly because of better fundamentals in corporate governance. That is why the government is committed to improving corporate governance practices in Indonesia," Tjager said at the second Asia Pacific Economic Cooperation (APEC) forum on the privatization program.

Representatives from developed economies under the Overseas Economic Cooperation and Development (OECD) grouping were also at the second forum.

The three-day privatization forum discussed the experiences of 21 countries in implementing their privatization programs, including improving corporate governance.

Soeroso, another deputy at the Office of the State Minister of Investment and State Enterprises Development, said the main aim of corporate governance reform in Indonesia was basically focused on improving the performance and the efficiency of SOEs so that they could provide more tax revenue and dividends for the government and create more employment.

"The SOEs will be transformed from an operation filled with corrupt, nepotism and collusive practices in the past into a clean and transparent business," he said.

Soeroso added that the Asian Development Bank was expected to disburse some US$250 million in loans in June to help finance the state budget, but acknowledged the disbursement was subject to the government's progress in reforming the SOEs sector.

A senior official at Thailand's finance ministry, Trevor Bull, said that improving corporate governance at SOEs was crucial to increase a government's privatization revenue.

"If you don't make the SOEs more efficient or if you don't have a regulatory framework, you won't get a premium for the shares," he said.

Bull said that addressing the issue of corporate governance was particularly crucial in large strategic SOEs like utilities or infrastructure monopolies that would not be privatized quickly.

Tjager said the introduction of new corporate governance in SOEs started early this year through several pilot enterprises which included electricity firm PT PLN, publicly listed tin mining company PT Tambang Timah, toll road operator PT Jasa Marga, passenger shipping firm PT PELNI and plantation firm PT Perkebunan VIII.

The corporate governance reform at Indonesian SOEs include the following:

The strengthening of the roles and responsibilities of boards of commissioners to be more active in supervising and advising boards of directors of the SOEs.

Second, redefining the roles and responsibilities of the board of directors to be clearer, particularly in relation to the primary objectives of each SOE.

Third, establishing audit committees for the board of commissioners.

Fourth, establishing a transparent and well-defined criteria and selection process for the boards of commissioners and directors.

Fifth, introduction of a statement of corporate intent for SOEs which will remain in state ownership for long term. This document is an agreement between the SOE and the government as shareholders and includes performance targets and other indications to hold the SOE accountable.

Tjager said the government also agreed with the International Monetary Fund (IMF) on the need for the SOEs to be publicly audited and to announce their financial statements through a company registry.

"We will promote the reform programs ... I have every confidence that the SOE leadership will answer the call for increased performance and accountability."

Privatization

The Office of the State Minister of Investment and State Enterprises Development supervises some 144 state enterprises, and the government partly privatized several of them.

The government plans to privatize another eight companies this year mostly through initial public offerings in a bid to raise around Rp 6.5 trillion to help finance the state budget.

Tjager said that three or four companies, including fertilizer firm PT Pupuk Kaltim, pharmaceutical firm PT Indo Farma and plantation firm PT Perkebunan IV, would be ready for IPOs starting late in July.

"We still face many obstacles including uncertain (capital) market conditions which might negatively impact the IPOs and strategic sales of SOEs," he said.

President of PT ABN-AMRO Asia Securities Indonesia William J.G. Daniel said it was difficult to judge whether the government's 2000 privatization target could be achieved, but stressed that market conditions were important to ensure a successful IPO.

"It is important to have targets, but they must be realistic. And obviously market conditions are very important as to whether the targets can be achieved," he said.

John R. Johnson of PricewaterhouseCoopers (PwC) suggested the government sell a majority stake of state-owned enterprises through a strategic sale process instead of an IPO.

"The thing is that an IPO is subject to market conditions ... but strategic investors are not thinking of the current market condition, because they're long-term investors," he said.

PwC is advising the government on the restructuring of the country's state-owned enterprises.

Johnson also said that to proceed with future privatization program, the ministry must get the support of the other cabinet members, parliament and the people to ensure its success.

"The main issue is political will," he said.

He added that the government must also actively socialize the benefits of privatization to the public and legislators.

Johnson explained that of about 150 SOEs in the country, only a few were operating in regulated industries providing basic services such as telecommunications, electricity and toll roads, with about 90 percent already operating in the competitive private sector.

"There's no reason for the government to keep controlling these (nonstrategic) SOEs. They should be quickly privatized or liquidated." He added that PwC proposed to the government to privatize some 50 companies this year and next year.

He said the extra budgetary cost for keeping the SOEs in the state's hands were estimated to amount more than Rp 30 trillion per year, including losses from corruption and inefficiency. (rei)