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he Vice President has told state firms to fight conflicts of interest and maintain independence to keep their businesses afloat as they can no longer rely on receiving state capital injections in the future.

Acknowledging the stereotype of state firms being inefficient as well as plagued by corruption and nepotism, Vice President Jusuf Kalla said the “learning cost” of such state firms had been too high since their establishment in the 1960s.

“Since then, lots of military officers were appointed as the president directors [of state companies] even though they had no idea how to run a business,” he said in his opening remarks at the Indonesia Business and Development (IBD) Expo in Jakarta on Thursday.

He said such practices were intolerable nowadays, when efficient and professional companies ruled the competition nationally and globally.

“In recent years, the government could still afford to give state capital injections to boost the performance of SOEs. However, in years to come, those companies are the ones that need to pay taxes and contribute more to the country,” Kalla added.

The comments came as the government prepares to form six holding companies operating in different sectors, namely oil and gas, mining, food, banking and financial services, construction and housing, with the aim of boosting state firms’ value, debt leverage and efficiency.

The establishment of holding companies, slated to occur by year-end, is expected to create synergy between state firms as they will be able to share resources and collaborate with each other to handle projects, hence improving efficiency.

State-Owned Enterprises Minister Rini Soemarno recently said her side had hired a consultant to review the plan, including its long-term potential. A legal umbrella has also been prepared in the form of a governmental regulation.

Meanwhile, Enny Sri Hartati, executive director of the Institute for Development of Economics and Finance (INDEF), said the restructuring plan could tighten the monitoring and evaluation of all state firms, which had often deviated from their core business through the establishment of subsidiaries.

Specifically, she mentioned state steel maker Krakatau Steel, which has diversified its business in various sectors, such as electricity and even property, although its core steel business has suffered from major losses in recent years.

“That kind of firm has to be disciplined, as subsidiaries should support and boost the core business of the company,” she said.

Moreover, Enny urged SOEs to show more professional management as they are often used to accommodate the cronies of political figures.

Meanwhile, Rini expected that SOEs’ total assets could soar by 40 percent to Rp 7 quadrillion (US$525 billion) in 2019 from the current Rp 5 quadrillion, following the restructure.

The SOEs Ministry has projected that the holding companies’ return on assets (ROA) will rise to 4.3 percent this year from 2.7 percent last year on average when the companies operated independently, while return on equity (ROE) could soar to 8 percent from 3.6 percent last year.

Net margin will also expand to 11 percent from 6.5 percent, while earnings before interest, tax, depreciation and amortization (EBITDA)/interest will decline to 3.44 times from 10.49 times.

Indonesia has 119 SOEs engaged in almost all sectors, ranging from state power company PLN, the biggest state company by assets, to publicly listed Bank Mandiri, the nation’s biggest bank in terms of assets. (vps)