RI state companies to face bumpy road of reform

RI state companies to face bumpy road of reform

Indonesia, Inc., Privatising State-Owned Enterprises;
Tanri Abeng;
Times Academic Press, Singapore, 2001;
224 pages

JAKARTA (JP): Tanri Abeng has this message of caution for
officials responsible for raising Rp 6.5 trillion (US$542
million) from the sale of 12 state-owned companies this year:
"Don't go for fast-track privatization".

"When I tried to push through a series of quick privatizations
I encountered enormous opposition from state company managers,
vested interest groups and nationalistic elements," Tanri says in
his book Indonesia Inc.

The 224-page book, written in English and published recently
by Times Academic Press, Singapore, documents Tanri's experiences
in trying to reform the 164 state companies in operations when he
was the minister of state enterprises under former president
Soeharto from March to May 1998, and then under former president
B.J. Habibie between May 1998 and October 1999.

He describes how, in an environment characterized by very
little public trust in the government, it was even more difficult
to persuade people that ministers or other officials were trying
to do the right thing.

"The effect of all this was to severely undermine our attempts
to promote privatization," he says.

Tanri, who in the early 1990s was dubbed the million-dollar
manager due to his great success in managing several foreign
businesses, tells us how he found himself entangled in the
government bureaucracy and power politics, having to navigate
through different sets of conflicting interests.

He served in the last two months of Soeharto's more than three
decades of authoritarian rule, observing how Soeharto treated the
government as a vast Javanese kingdom and used state companies as
cash cows for his family members and close associates.

Strikingly different, Soeharto's successor Habibie ran his
cabinet like a chief executive officer chairing the board meeting
of a large conglomerate, involving his ministers and key advisers
in vigorous, open debates on policy matters.

It was against this backdrop of volatile bureaucratic and
political climates that Tanri struggled to execute his task of
restructuring the largely inefficient and corruption-infested
state companies at a time when the country was mired in its
worst-ever economic crisis.

As well as intervention from the Soehartos and their cronies,
Tanri faced the delicate challenge of warding off meddling by
other cabinet ministers who had also used state companies to
their personal benefit.

The problems arose from the fact that, before the creation of
a special ministry of state companies in March 1998, these
enterprises were under the supervision of the various ministries,
depending on the nature of their business.

Even before starting his job, Tanri was faced with the
formidable task of setting up a ministry, organizing its
structure and recruiting staff within a severely limited budget
allocation.

He initially planned to set up a holding company, instead of a
ministry, following the successes of Malaysia's Khazanah Holdings
and Singapore's Temasek Holdings which manage state companies and
government investments. He was forced to scrap the plan though,
because it required a new law as a legal basis, something that
could take years to enact.

The book is not simply an account of his experiences, but more
an analytical review of how the politics of reform in state
companies in a developing country like Indonesia should be
conducted.

The findings of his diagnosis of the main problems besetting
state companies are not much different from the conclusions of
past studies on Indonesian public-sector companies made by
academics: excessive government intervention, overly bureaucratic
decision making, poor-quality managers and lack of
accountability.

But the book delves deeper into describing the master plan he
formulated immediately after the ministry was in place. This
masterplan outlines the policies, methods and procedures his
ministry would use for the reform and privatization process,
serving as a main guide for all policy measures related to state
companies.

He also describes a step-by-step approach to state company
reform and privatization, explaining in detail the procedures and
steps that should be taken in launching an initial public
offering, private placement or finding a strategic alliance.

Tanri designs blue prints for the restructuring of state
companies according to their industry and outlines efforts to
increase their market value through what he calls value-creation
programs.

Ultimately, Tanri's every move within the privatization
process put him in the spotlight, leading to accusations by
analysts and politicians that he lined his own pockets, as well
as raising funds for the Golkar Party, which then supported
Habibie.

Judging from the procedures and the step-by-step approach he
set for every stage of the privatization process it would
actually be rather impossible for him or his officials to skim
off money for themselves.

One of the procedures, for example, required all money paid by
investors for shares in state companies to go directly to the
ministry of finance. As in a company, the functions of cashier
and bookkeeper are separated.

Yet due to the pervasive distrust of the Habibie
administration, which was seen by the public simply as an
extension of the Soeharto regime, allegations of corruption soon
became the main issue he encountered in his short career.

Public suspicions were not the only challenge facing his
ministry though. With foreign and domestic investors having
withdrawn their money during the peak of the crisis in 1998, it
was then extremely difficult to find buyers for state companies.

Then state company managers and parties with a vested interest
in the companies mounted strong opposition to the privatization,
fearing that they would lose their lucrative positions with the
entry of new investors, or shareholders.

Under pressure to raise money for the state budget, Tanri
selected Semen Gresik as the first company to be privatized. As
soon as he announced the plan publicly, including the steps and
procedures for the bidding, two securities firms closely aligned
with the Soehartos approached him.

Makindo allied with Swiss Holderbank cement company, and
Bhakti Investama (partly owned by Soeharto's daughter Titik
Prabowo) aligned with German Heidelberger cement company, wanted
to bid for Semen Gresik.

"Worried that this might lead to a special deal for Holderbank
entirely in violation of the system-based program I promote, I
then approached Soeharto and outlined my intention to follow my-
step-by-step privatization system ... and to my pleasant
surprise, he told me 'to do what is in the best interest of the
country'."

After several rounds of bidding, Mexico's Cemex was finally
selected as the winner with the highest bid, paying a 112 percent
premium on Semen Gresik's share-market value.

Despite the obstacles and unfavorable economic conditions,
Tanri eventually succeeded in selling the shares of five state
companies, bringing $1.03 billion into the state coffers between
March 1998 and September 1999.

Tanri also claims in his book that his restructuring efforts
succeeded in increasing the number of sound state companies,
based on the government-set parameters, from 81 in 1997 to 89 in
1998.

Unfortunately, however, Tanri seemed to slip deeper into power
politics by mid-1999, joining the Golkar Party campaign to secure
Habibie's election.

He was implicated in what is now known as the Bank Bali
scandal -- the alleged embezzlement of state funds through a
transaction with Bank Bali -- and was investigated by the
Attorney General's Office.

Even though most primary defendants in the scandal have been
acquitted by the court, and investigations have not yet resulted
in any case against Tanri, his image as a first-class corporate
manager was tainted.

Notwithstanding this perception, however, the concept, method,
step-by-step approach and procedures he developed for the reform
and privatization of state companies are an instructive insight
on how the daunting task should be executed in a fully
transparent and highly accountable manner.

-- Vincent Lingga