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Indonesia picks McKinsey to revamp firms with $172b sales

  • Tassia Sipahutar

    Bloomberg

Jakarta   /   Fri, February 7, 2020   /   11:22 am
Indonesia picks McKinsey to revamp firms with $172b sales State-Owned Enterprises Deputy Minister Budi Gunadi Sadikin. (JP/Damar Harsanto)

Indonesia is working with consultants McKinsey & Co. and Boston Consulting Group to revamp state firms with a combined revenue of US$172 billion and dominate sectors from energy to construction and telecom.

The global consultants will prepare a roadmap for the 114 state-owned enterprises, including oil behemoth PT Pertamina, power utility PT Perusahaan Listrik Negara and flag carrier PT Garuda Indonesia, according to State-Owned Enterprises Deputy Minister Budi Gunadi Sadikin. The revamp plan will be in line with President Joko Widodo’s 2020-24 national plan and is expected to be finalized by the end of February, he said.

Indonesia has far too long relied on state companies to execute its economic agenda including building ports, roads and airports and saddled them with huge debt in the process. Jokowi, as the president is known, last year appointed business tycoon Erick Thohir as the State-Owned Enterprises Minister with a mandate to “build SOEs capable of expanding into global markets.”

Erick, a former shareholder of FC Internazionale Milano SpA, or Inter Milan, D.C. United and the Philadelphia 76ers, has pledged to revamp the SOEs either through mergers or liquidation and reduce the myriad number of units the companies operate.

The SOEs will be restructured to promote business innovation, technological leadership and the ability to partner with world-class companies, Budi, a former chief executive of state-run PT Bank Mandiri, said in an interview. “We would like to create an ecosystem, where all state owned CEOs have the skills to deal with international investors,” he said.

Global partnerships will be key for state firms as Jokowi wants to transform Indonesia to a manufacturing powerhouse from being a supplier of raw materials. The country has set its eyes on becoming a hub for electric batteries with its huge nickel reserves and processor of crude palm oil and coal into fuel to power vehicles and substitute liquefied petroleum gas.

Sixty-four companies under Budi’s supervision have been divided into 12 clusters for easy monitoring and management. “I will just have to deal with 12 CEOs instead of 64 CEOs,” Budi said.

PT Telekomunikasi Indonesia will be revamped to boost return on its investment in building a nationwide telecom infrastructure, Budi said adding the carrier may explore collaboration with mobile phone application developers to boost margins.

State-owned companies in the basic industries will be encouraged to partner with foreign firms for advanced technology, Budi said. Pertamina’s tie-up with Abu Dhabi’s Mubadala Investment Co. for a refinery and coal miner PT Bukit Asam’s joint venture with Air Products and Chemicals Inc. were moves to tap newer technology, he said.

State-owned enterprises posted a net income of Rp 138.1 trillion ($10 billion) in 2018 with sales of Rp 2,360 trillion, official data show. The companies had assets worth Rp 8,200 trillion while their liabilities stood at Rp 5,604 trillion.