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Consolidating state companies
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State-Owned Enterprises (SOEs) Ministry. (kompas.com/-)
T
he first major program launched by Tanri Abeng, a professional corporate manager who was appointed in the early 1998 by then president Soeharto as the first state-owned enterprises (SOE) minister, was to consolidate state companies within similar business sectors under holding companies.
He hired several foreign consulting companies to assess the corporate action plan. But vested interest groups within both the executive and legislative branches of the government, which used to treat SOEs (then estimated at a total of 130) as their cash cows, shot down Tanri’s reform program.
Tanri’s successors tried similar initiatives but most of them failed. Only Dahlan Iskan, the SOE minister under the Susilo Bambang Yudhoyono administration, succeeded in establishing three holding companies respectively for 13 state plantation firms, three fertilizer and three cement companies.
The current SOE Minister, Rini Soemarno, who has decades of experiences in corporate management, including as CEO of PT Astra International, a blue chip company on the stock market that is one of the country’s largest, has also followed in the footsteps of her predecessors in light of reforming SOEs, which most recently numbered at around 120.
But Rini’s initiative met with strong opposition from the House of Representatives, which has even treated her as persona non grata at the House due to her political feud with the ruling Indonesian Democratic Party of Struggle (PDI-P) faction.
We are glad to learn that the new Finance Minister, Sri Mulyani Indrawati, who temporarily represented Rini at working meetings with the House, fully supports Rini’s restructuring program.
Efficiency and synergy are the primary objective of the consolidation program. There are simply too many state companies, and the government really does not have any business to involve itself in so many kinds of industries.
Worse still, most state companies have been grossly inefficient with lax internal control, poor accounting standards and practices, highly vulnerable to arbitrary government interference. No wonder, most SOEs have remained local players, unable to compete even in the regional market.
Take for example state-owned Bank Mandiri. It’s the largest commercial bank in Indonesia — the largest economy in ASEAN, but in terms of assets Mandiri ranks only the eighth largest in the region. There are still three other state commercial banks. There are also many other business areas where state companies fiercely compete with each other.
If SOEs in similar lines of business are merged under super holding companies, their equities and assets will be larger, their credit rating will be higher. They can leverage their larger equities for higher loan amounts and at lower interest rates. They can also pool their resources to improve efficiency in marketing, distribution and procurement.
We strongly support the SOEs consolidation and urge the House to expedite the amendment of the SOE law to implement the restructuring plan and to allow for more flexible corporate decisions by directors. If this restructuring program can be executed we will no longer need the SOE Ministry with all its bureaucratic excesses.
