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tate-Owned Enterprises (SOEs) Minister Dahlan Iskan will finally be able to do what his predecessors had tried to do since 1998. On Thursday, Dahlan will inaugurate the Medan, North Sumatra-based state plantation firm PT Perkebunan Nusantara (PTPN) III as the holding company for 13 other state plantation firms.

 This corporate move is part of the ongoing reform of the SOEs. It will merge the 14 state plantation companies that cultivate oil palm, rubber, sugar cane and tea across the country into a holding company with a single board of directors.

The merging of the state plantation companies is expected to make them more efficient and capable of competing with private companies, including foreign investors from Malaysia and Singapore, which have played an increasingly bigger role in the plantation sector.

The first state enterprises minister, Tanri Abeng, tried in 1998 to consolidate SOEs within similar business lines, such as those in the plantation, banking, mining and forestry sectors. He also hired several foreign consulting companies to assess the corporate plans. Despite these efforts, vested interest groups accustomed to treating the 140 SOEs as cash cows foiled Tanri'€™s reform program.

The objective of the consolidation program is to eventually streamline the SOEs so that their total number can be brought down to between 25 and 30. Ideally, Indonesia wouldn'€™t need a state ministry in charge of supervising SOEs, as it would be replaced by several super-holding companies, like Temasek in Singapore and Khazanah Nasional in Malaysia.

Efficiency and synergy are the chief objectives of the consolidation program, which will be accomplished either through the merger or acquisition of SOEs operating in similar or related business lines.

There are simply too many state companies, and the government really has no business involving itself in so many kinds of businesses that could be conducted efficiently by private firms. Worse still, most state companies have been grossly inefficient, with lax internal control, poor accounting standards and practices and with a high degree of vulnerability to arbitrary government interference.

Another reform measure the government has been pursuing to protect the SOEs from political intervention and greedy, rent-seeking politicians is to bring qualified SOEs to the capital market through initial public offerings, thereby subjecting them to higher standards of accountability and disclosure requirements.

What is still needed to secure a smooth reform of the SOEs is a broad legal and political framework for the program and clear-cut guidelines on which companies are best privatized through the stock market, which through strategic sales (private placement) and which ones should be merged or liquidated.

Admittedly, privatization, like other reform measures, may initially create destabilizing impacts, as redundant employees and complacent managers in inefficient companies are afraid of losing jobs; and many senior officials with political power over state enterprises are worried about losing their cash cows. But the gains of implementing reform are still much greater for the economy and the interests of the people, especially because many of the SOEs operate in upstream manufacturing industries.