Legal basis on state firms merger plan questioned

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.