Indonesia pledges better corporate governance in SOEs

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)