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Jakarta Post

SOEs serve as cash cows; no end in sight

When the eldest sister of the spouse of Indonesia’s most powerful man walked into the headquarters of state power company PT PLN in Jakarta a year or so ago, her visit was said to have been to push PLN’s management to buy coal from her mine in Kalimantan — despite its low quality and uncertain supply

Rendi A. Witular and Nani Afrida (The Jakarta Post)
Jakarta
Tue, May 11, 2010

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SOEs serve as cash cows; no end in sight

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hen the eldest sister of the spouse of Indonesia’s most powerful man walked into the headquarters of state power company PT PLN in Jakarta a year or so ago, her visit was said to have been to push PLN’s management to buy coal from her mine in Kalimantan — despite its low quality and uncertain supply.

Apparently based on concern of her scope of influence, PLN management eventually agreed to forge a deal — and the PLN manager accommodating the deal was subsequently promoted to director.

For more than three decades, the ruling political elite (along with their families and cronies) largely fed on state-owned enterprises (SOEs) to secure continued positions in power.

While SOEs are generally in better shape and more profitable nowadays, it seems they are not free from extortion by politicians and their business cronies.

State-Owned Enterprises Minister Mustafa Abubakar told The Jakarta Post recently he could not guarantee SOEs would not be used as political cash cows, but pledged a set of measures to keep intervention to a minimum.  

“The complexity and the spectrum of SOEs is just overwhelming. In spite of this, I’ve pledged to keep political and business intervention to a minimum.”  

Inefficiency undermining SOEs’ performance was a daunting challenge that needed to be resolved, Mustafa said.

Despite being granted various privileges, including monopolies, SOEs’ performance often remains below that of peers in the private sector. State plantation companies PT Perkebunan Nusantara (PTPN) I to XIV, for example, have a total concession of 1.4 million hectares, but with a combined return of asset (ROA) of 6 percent compared to more than 45 percent recorded by private company PT Astra Agro Lestari, that has a concession of only around 270,000 hectares.

Concessions owned by the state plantation companies are mostly near ports and highways, while Astra Agro’s are tucked largely in remote areas.

State insurance and pension fund company PT Jamsostek has also reportedly failed to live up to its potential. Despite being a market leader and the nation’s largest fund manager, the firm recorded an investment yield of 7 percent in the stock market, despite the industry average of 10 percent in 2007.

Meanwhile, Jamsostek’s investments in mutual funds only yielded 10 percent against the 18 percent industry standard.

“Inefficiency in SOEs is always attributable to corruption,” economist Faisal Basri of the University of Indonesia said.

“SOEs will remain a cashcow to ruling politicians and their cronies because our election costs are unusually high. No one can offer subtle loyalty in the form of campaign funding other than SOE executives, who are also vying to remain in power,” he said.

Cases of corruption in SOEs are becoming more sophisticated, Faisal said, with numerous proxies making the graft less apparent to the public.

Indonesia Corruption Watch (ICW) executive Yanuar Rizky said those close to the power circle were the obvious players illicitly profiting from SOEs.

“Those plundering SOEs must be influential figures close to the President or to powerful politicians.”

Mustafa, however, denied direct intervention from the President Susilo Bambang Yudhoyono men to secure projects or to seek funds from SOEs.

“Yudhoyono’s message was that his wife and children were not engaged in business. But if he had a family member who was capable of having a business with state companies, they should not be rejected merely because of the family link,” Mustafa said. “We have no way of knowing if the intervention has occurred directly with directors unless our internal inspectors spot it.”

 

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