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Social obligations hurt BUMDs' profitability
Region-owned enterprises (BUMDs) have pointed to the social obligations assigned by local governments for resulting in most BUMDs being less profitable than private companies
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R
egion-owned enterprises (BUMDs) have pointed to the social obligations assigned by local governments for resulting in most BUMDs being less profitable than private companies.
The secretary-general of the national cooperation board for BUMDs, Syauqi Soeratno, said the social obligations had hampered the operations of many BUMDs.
'There is just too much on their plate. On one hand, they are expected to maximize profits but on the other, they have to fulfill their duties as public service providers,' Syauqi said recently.
He added that the cooperation board had for a long time called for the passing of a BUMD bill in the House of Representatives to reconcile this contradiction, explaining that the legislation was necessary to strengthen the role of these public enterprises.
The cooperation board's chairman, Arif Afandi, revealed his group's intention to separate profit-oriented BUMDs from those that emphasized social tasks, or public service obligations (PSO).
Arif said profit-making firms, which have the task to raise revenue for local governments, should be run as limited liability companies to allow for business flexibility, while those with PSOs, such as clean water providers, needed to be managed as regional state companies
(Perumda).
He also said that the cooperation board had consulted with the Regional Representatives Council (DPD) last year and submitted a draft BUMD bill to legislators. 'We don't know whether or not the House will review it, but we hope it will be passed in the next legislative term,' Arif said.
He acknowledged the difficulty of passing such a bill, as BUMDs were managed within a political rather than an economic context. 'House Commission II [overseeing domestic governance and regional autonomy] works on a political premise, whereas we want BUMDs to have a more economic- and business-oriented context,' he explained.
Moreover, many BUMDs seem to suffer from mismanagement.
- Social obligations had hampered the operations of many BUMDs
- BUMD board called for sepation of their business
- Those with profit orientatio should operate under busines entity (PT)
Indonesia has 1,007 BUMDs registered with the Home Ministry, accounting for total combined assets of Rp 500 trillion (US$43 billion). However, according to Arif, only 20 percent of these assets could be considered healthy. 'As much as 80 percent of these few healthy enterprises work in the regional banking sector, which demands high management standards,' he concluded.
BUMDs are different from state-owned enterprises (BUMNs), which are run under the supervision of the State-Owned Enterprises Ministry.
Enny Sri Hartati, an economist with the Institute for Development of Economics and Finance (Indef), said BUMDs should not blame their social obligations for their low profitability, adding that their PSOs received government subsidies.
'There is no reason for a BUMD to incur losses, especially if it does not conform to its PSOs. If an enterprise is unprofitable, that's the management's fault,' Enny told The Jakarta Post on Sunday.
She added that good human resource management was a priority, as BUMDs were considered strategic pillars for regional development.
'All the potential and resources lie in the regions, so human resources should be managed there. As most money flows into major cities, BUMDs must become pioneers of change and development in the regions,' she said. 'Human capital isn't dead weight; it can easily be improved if regional administrations are serious.'
With regard to the draft BUMD bill, Enny said it was unfeasible due to the disparate nature of the enterprises involved. 'The bill can't be passed because there's no effective way to implement uniform regulations or [incorporate] lex specialis,' she said, referring to the need for a number of exceptions to the law.
