Inefficient state firms lose US$4 billion

Berni K. Moestafa, The Jakarta Post, Jakarta

Independent audits on five state companies, including PT Telkomunikasi Indonesia (Telkom) and national airline PT Garuda Indonesia, found inefficiencies, potential losses, and lost savings amounting to US$4 billion in the five years from 1995 to 1999.

The three other state firms are toll road operator PT Jasa Marga, port operator PT Pelabuhan Indonesia II (Pelindo), and palm oil plantation firm PT Perkebunan Nusantara IV.

"These performance audits allow us to measure the gap that separates the state firms from international best practices, so that we can aim for higher growth," Minister of State Enterprises Laksamana Sukardi said on Thursday in a press briefing to announce the audit results. The audits form part of an agreement with the International Monetary Fund (IMF), and is the second round since the first was completed in 1999.

Called special audits, their announcement on Thursday is required by the current Letter of Intent (LoI) to the IMF.

Performing the special audits were Pricewaterhouse Coopers (PwC), which audited Jasa Marga and Garuda; Arthur Andersen, which audited Pelindo; and RSM International was responsible for Perkebunan and Telkom.

The audits cover a five-year period, except for Perkebunan Nusantara, which underwent only a four-year audit.

Auditors defined inefficiencies as costs that should not have occurred, could have been avoided or revenues that might have been earned, if the firms had operated more efficiently.

In the five-year audit period, inefficiencies led to losses of Rp 8.5 trillion (about $801 million), with Garuda alone incurring $1.62 billion.

Savings or profit losses were defined as costs that could have been avoided or revenues that might have been earned if the firms had operated more efficiently.

In total, the five firms lost Rp 7.3 trillion and $698 million.

In reference to potential losses, the auditors explained these as future liabilities arising due to inefficient operations or a lack of compliance with international best practices.

In this category, auditors found potential losses of Rp 776 billion and $147 million, plus Rp 64.6 billion per year in the near future.

At Telkom, examples of inefficient operations included high procurement costs, uncollected account receivables, and unfavorable deals with several joint operation partners.

Telkom auditor, RSM International recommended among other things, renegotiating the unfavorable terms in its contracts with joint operation partners.

National flag carrier Garuda incurred losses partly from operating unprofitable routes, such as to the United States or Europe. These led to losses of $721 million in 1995 to 1999.

Auditor PwC said after Garuda reduced several routes, that had led to over employment and excess flight capacity.

On Jasa Marga, PwC found too much government interference.

The company lacked a clear role that prevents commercial decision-making, according to the auditor.

This, PwC said, resulted in Jasa Marga operating several unprofitable toll roads. Other inefficiencies include low productivity due to over employment, and a lack of initiative to open supporting services such as gas stations and rest stop/service areas to boost revenue, PwC said.

Perkebunan Nusantara was marked down due to its low production capacity, and a joint marketing scheme that kept commodity prices too low, according to RSM International.

Arthur Andersen identified Pelindo's inability to provide loading services as a hindrance to the firm's ability to optimize earnings.

The auditor suggested the government grant Pelindo the authority to provide full services at its ports.

Eyebox:

State firm losses 1995-1999

Inefficiency losses : Rp 8.5t and US$1.6b

Potential losses : Rp 7.3t and US$698m

Savings, earnings losses : Rp 776b + Rp 64.6b

yearly and US$147m