SOE privatization program: Quo Vadis?

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