Investors confidence hampers privatization drive JP/ /BUMN

Investors confidence hampers privatization drive

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 has targeted to collect 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's deficit.

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

According to Yasin, the government still has a 'trump card' which makes it still optimistic to be able to 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 have been postponed to this semester due to several reasons, including low bidding prices offered by investors.

From the Indosat sale alone, the government has expected to reap Rp 3.5 trillion. Indeed, Indosat and another telecommunication company PT Telekommunikasi Indonesia (Telkom) have been the prime cash cows the government's 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 have been growingly pessimistic that the government would be able to achieve the target.

First, analysts say, a string of financial scandals in the U.S. has caused jittery among investors worlwide, slumps in the global stock markets for weeks. This would discourage many investors from investing in the stock markets.

"The share price of domestic listed firms, including the state enterprises, also tumbled following the scandals.

As a result, the government is forced to delay the privatization process, waiting for better price," economist Pande Radja Silalahi from the Center for Strategic and International Affairs (CSIS) told the Post.

Secondly, many analysts believe Indonesia foreign investors still do not have much interest in Indonesia given the prevailing legal uncertainties. Investors' disbelief about the country's legal system has been aggraveted 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.

Thirdly, some, or probably many, members of the public still resist the privatization program.

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.

The resistance from the Ministry of Health reminds people of the resistance launched by the West Sumatra community against the sale of cement maker Semen Padang.

to the investors, saying that the both companies produce cheap generic medicine, which are badly needed, by rank and file public. Another example was a nationalistic sentiment aroused in the case of PT Semen Padang.

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

The government could only collect Rp 2.1 trillion in earnings or 32.31 percent of the annual target of Rp 6.5 trillion.

As far as dividends are concerned, (until ....) 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.

Yasin acknowledged that the government was facing daunting challenges. But, he quickly said the government was optimistic that the target was still achievable.

"Global hits no doubt affect Indonesia, but overall, the state enterprises are not window-dressed like in the U.S.

Market perception, which manifests into stock prices, is still bad to our state enterprises, but actually that is not in line with state enterprise fundamentals," he said.

Recognizing the challenges, the ultimate step of the government was to convince investors that the state enterprises were healthy and profitable, and that the investors would later find that it would be safe to invest in Indonesia.

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

For Indofarma and Kimiafarma cases, Yasin said that the government would find out a middle way.

"The government would still sell 51 percent controlling stakes. But, in order to the public do not earn losses from the scheme, the government would mention in the sales and purchase agreement with the investors that the investors must uphold commitment to produce the generic medicine," said Yasin.

The most important thing, the government must be transparent in the privatization process in a bid to attract the investors.

"Transparency, from the appointment of the tender advisors until the procedure of the tender, is needed to prevent adverse practices such as insider trading, which has caused law uncertainty in business," said Laksamana Sukardi, the State Minister of State Enterprises, in an article available to press.

Government's Master Plan for Year 2002 Privatization Program

No State Enterprises Govt Shares Privatization Method

First Semester 2002

1. PT Indosat Tbk 65 % Strategic Sales (SS) 2. PT Batu Bara Bukit Asam 100 % Initial Public Offering (IPO) 3. PT Indocement Tunggal

Prakarsa 16.87 % Secondary Offering (SO) 4. PT Wisma Nusantara

International 41.99 % SS 5. PT Indofarma Tbk 80.93 % SS 6. PT Kimia Farma Tbk 90.30 % SS 7. PT Angkasa Pura II 100 % SS

Second Semester 2002 1. PT Angkasa Pura I 100 % SS or IPO 2. PT Kertas Basuki Rachmat 2 % SS 3. PT Inti Rub 9.9 % SS 4. PT Indah Karya 100 % Employee Management Buy Out

(EMBO) or SS 5. PT Jakarta Int'l Hotel 3.3 % SO 6. PT Industri Gelas 64 % SS 7. PT Indra Karya 100 % EMBO or SS 8. PT Carmbrics Primissima 52.79 % SS 9. PT Adimindo 36.6 % SS 10. PT Cipta Niaga 100 % SS or IPO 11. Rukindo 100 % SS 12. PT Yodya Karya 100 % EMBO or SS 13. PT Kertas Blabak 1.6 % SS 14. PT Kertas Padalarang 40 % SS 15. PT Danareksa 100 % SS or IPO or EMBO