SOE privatization program: Quo Vadis?

Erwin Tunggul Setiawan, Jakarta

It is generally understood that privatization is a process in which public or state ownership of an enterprise is transferred to a private party.

It is how this process materializes into reality that has long been a big problem here.

That the process of privatization is indeed a big problem is clearly seen from the hard struggle that high-ranking government officials in charge of state-owned enterprises have faced all these years.

When privatization was "introduced" in 1991, Tanri Abeng, then the state minister for state enterprises, had to go through all the pros and cons of this matter. At that time Tanri was trying to privatize PT Semen Gresik by transferring part of its ownership to a Mexican company, Cemex.

Then, when Laksamana Sukardi, a former banker, was state minister for state enterprises, he was accused of "interpreting" privatization too liberally by allowing the nation's assets to be sold to foreign investors at "low prices".

When president Megawati Soekarnoputri term ended, those opposed to privatization began to gain the upper hand. A "rebellion" of sorts regarding privatization has been seen here and there. Even many in the government are openly against privatization.

Several parties seized this momentum to make public their disagreement with the privatization of state-owned enterprises (SOEs). In October 2004, for example, the Blora Center organized a discussion under the theme of "SOEs Will Remain Sound Without Privatization".

The president director of Bank Mandiri, E.C.W. Neloe, now caught up in a bad debt scandal, has complained that state banks have been coerced into taking the privatization road.

"In fact, at the same time, it is demanded that we should make a bigger profit," he said.

The president director of state-owned telecommunications company PT Telkom, Kristiono, who was one of the speakers at the discussion, expressed a similar view. However, he went even further, saying that in the future there would no longer be any need for the Office of the State Minister for State Enterprises. Earlier, voices against privatization, particularly from officials at state-owned enterprises, were hardly ever heard.

As a result, the process by which the government gives up its shares in state-owned enterprises has become vague. There has been no satisfactory explanation from Coordinating Minister of the Economy Aburizal Bakrie and State Minister for State Enterprises Sugiharto regarding this matter.

Recently, however, the secretary at the Office of the State Minister for State Enterprises, Richard Claproth, said the office would only use initial public offerings (IPOs). "Regarding strategic SOEs, the government will employ only the TOT (transfer, operation, transfer) pattern without any transfer of ownership," he said in a discussion held at Parahyangan University in Bandung last May.

In addition, Sugiharto also hinted that the government will not sell its shares in SOEs at low prices. And the Office of the State Minister for State Enterprises will not allow foreign investors to control over 51 percent of these shares.

"Foreign investors will be allowed to control a maximum of 5 percent to 10 percent of the shares," he said.

All this is just what we can learn from the media because we have yet to find out what the real policy is that Sugiharto will implement regarding SOE privatization.

Major businesspeople and international economic institutions are extremely eager to learn the policy of privatization that will prevail in the present administration of President Susilo Bambang Yudhoyono. Will this policy be different from that implemented during the administration of Megawati Soekarnoputri? Unfortunately, they have so far had to be content only with controversial statements in the media by Vice President Jusuf Kalla and Coordinating Minister for the Economy Aburizal Bakrie.

Aburizal Bakrie has said that privatization will go on. This, in his opinion, is a mandate of the law that has to be exercised. Privatization is necessary to ensure that the target of Rp 13 trillion in revenue from SOEs and their share dividends set by the government will be reached.

Vice President Jusuf Kalla, however, immediately responded, saying, "Of course there must be revenue, but which SOE has to be sold?" He also said that Indonesia has had bad experiences with privatization. "We no longer want to sell this nation's assets at low prices," he noted.

Surely, this situation cannot be allowed to go on as it is now. What should be our stance regarding this matter? In this context, there are several things that need revamping.

First, ironically, Indonesia is yet to have a standard regulation on privatization although it has sold several assets. That is why privatization has been implemented only in accordance with the wishes of those currently in power.

There is also an indication that privatization is part of the "project" of officials at the Office of the State Minister for State Enterprises.

The Asian Development Bank is to a certain degree correct when demanding that Indonesia immediately draft a law on privatization.

Indonesia should immediately issue such a law rather than just wasting time by nurturing deep suspicion over demands made by foreign institutions in this respect.

Second, the government has always said that it is waiting for "the appropriate time" and the right market conditions before selling its assets, in the hope of fetching a better price. Predicting when the right market conditions will prevail is indeed a very difficult job.

Unfortunately, the attitude that high-ranking government officials have shown regarding this matter hardly helps improve market conditions.

Third, the Office of State Minister of SOEs must not deal solely with privatization. It must also devote sufficient attention to the management system of national corporations.

Efficiency and improvement in the financial soundness of an SOE after its privatization will be of little use unless the environment and the partners of this particular SOE are likewise efficient.

In a corrupt and inefficient economic system, a clean SOE will be as useless as "sweeping a dirty floor with a dirty broom." Therefore, SOE privatization is a national project and not simply the task of a particular institution.

Fourth, every privatization incur huge costs, including the social cost. This social cost is connected with the cost that arises to carry out "SOE privatization campaigns" to all the stakeholders of the company: the employees, the board of directors and related government institutions.

An SOE privatization campaign should not be concerned only with how this privatization will be implemented but, more importantly, it must deal with how the employees will fare that have to be laid off or transferred in position as a result of this privatization.

Unfortunately, the government is yet to pay serious attention to this social cost. The sales of the government's shares in Indosat to a Singaporean investor is a case in point. After this privatization, many Indosat employees stage large-scale protest rallies.

Fifth, there must be a change in the way SOEs are managed. A number of SOEs, particularly in the banking sector, are badly managed under the "4 in 1" principle, in which the government plays simultaneously 4 roles: a regulator, a supervisor, an owner and an operator.

When the government privatizes an SOE, its management system must be changed. Migration in the work habit will be necessary so that a less competitive SOE will become more competitive and more professional. In this respect, a particular strategy and program will be needed because a change in work habit takes a long time to become a reality.

Several obstacles may be in the way. It is the prevailing belief that a more professional work habit is necessary only for an SOE that has been privatized. In fact, the government should understand that the ownership of this SOE has been shared with another party.

An unprofessional attitude, such as the feudalistic principle of "as long as the leader is pleased" is still inherent in inter- corporate relationship. It is this particular attitude that has always made it difficult for a privatized SOE to develop its professionalism. That's why the working environment of an SOE also needs revamping.

The writer is a Jakarta-based capital market analyst