Legal basis on state firms merger plan questioned

The Jakarta Post, Jakarta

Following objections from ministers over the Office of State Minister of State Enterprises' plan to merge under-performing state firms and establish a holding company, the plan has received another blow.

Legislator Dradjat Wibowo of the House of Representatives' Commission XI overseeing banking and financial affairs said "There is no legal basis for the establishment of a holding company". He was speaking on Thursday in a seminar on "The prospect of state enterprises after the first 100 days of the cabinet".

"The State Minister of State Enterprises must seriously make a better thought out concept," said Dradjat, adding that the plan might only cause inefficiency instead of giving value to state firms.

"Take forestry related state enterprises for example," he said. "Each of them has a specific business character that, in the end, will be difficult to be merged."

"The plan does not reflect the government's intention to create efficiency in state firms. They should focus more on increasing their return-on-assets as this has been declining."

Minister of Forestry Malam Sambat Kaban as well as Minister of Transportation Hatta Radjasa had earlier objected the plan, arguing that the management of state firms must be under their ministries in a bid to increase their performance and efficiency.

Dradjat said state enterprise's return-on-assets in 2003 was only 1.68 percent, a decline from 2002's 1.72 percent. If in 2003 state firms could increase their return-on-assets to 4 percent, they would have contributed Rp 13.5 trillion (US$1.48 billion) to state coffers.

Banking law expert Sutan Remy Sjahdeini, meanwhile, supported Dradjat's statement on the urgency for a sound legal basis for the plan in order to avoid legal disputes in the future.

"The planned holding companies should be fully owned by the state. If other parties have ownership in the companies, it could create legal problems in the future," he said.

Despite the criticism, the plan to merge the state firms was backed by chairman of the Indonesian Performance Management Society Irnanda Laksanawan who said that it would help create a more credible portfolio for state firms to enter into international tender processes.

"Perhaps it would be better to call the plan a regrouping," he said. "It is time that state enterprise's business cycles be evaluated while at the same time rearranging their business plans according to market opportunities before establishing a holding company for them."

Responding to concerns from managers of state enterprises that their jobs might be cut, Irnanda said such a possibility was unlikely because the formation of a holding company would only mean a shift in ownership, not in management.

As of last year, Indonesia had a total of 158 state enterprises with an average return-on-assets of 2.49 percent and an average return-on-investment of 6.10 percent.

In the same year, there were 31 state firms suffering losses totaling Rp 4.49 trillion. Six state enterprises had not submitted their annual reports.