Investors confidence hampers privatization drive

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