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Jakarta Post

State firms to focus on ‘slimming down’ while avoiding layoffs

  • Riska Rahman

    The Jakarta Post

Jakarta   /   Fri, April 3, 2020   /   08:21 pm
State firms to focus on ‘slimming down’ while avoiding layoffs State-Owned Enterprises Minister Erick Thohir. (JP/Seto Wardhana)

Two-thirds of Indonesia’s 142 state firms and around 800 subsidiaries and sister companies will be consolidated as the government focuses on “slimming down” to help profitable businesses that add value to the state, a top official has said.

The State-Owned Enterprises (SOEs) Ministry announced Friday its plan for business “rationing and consolidation” within state firms. Energy giant Pertamina, telecommunications firm Telekomunikasi Indonesia (Telkom) and flag carrier Garuda Indonesia stand on the front line of plans to merge, liquidate or divest stakes in subsidiaries.

SOEs Minister Erick Thohir said the business overhaul would also reduce the number of business sectors covered by state firms to 14 from 27 sectors today.

“We are slimming down gradually, but we are prioritizing some [companies] first like Telkom and Garuda because they are publicly listed companies,” Erick told a teleconferenced briefing.

“Of course there will be questions on the fate of the employees. We would try to minimize layoffs.”

Pertamina and Garuda executives said they would reassign employees in the affected companies to their respective parent companies or other business units.

Overhauling the country’s state firms has been a key goal of President Joko “Jokowi” Widodo since he appointed Erick as minister in October last year, as he believes that SOEs are scattered across too many sectors with management groups that burden their companies.

Read also: Government redirects state capital injections as COVID-19 hits businesses

“We continue to focus on the core business, sustainable efficiency, so we continue to remain healthy. Especially with COVID-19, corporations need efficiency,” Erick said.

Garuda may need to restructure its sharia-compliant sukuk (Islamic bonds) due in June as the airline struggled to pay its dues with COVID-19 hitting the travel industry hard, the minister said on March 20.

“The companies would of course generate some money from the liquidation and divestments, but the amount is insignificant. What’s more important is that we make SOEs more efficient and consolidate them,” Erick said. Pertamina, Telkom and Garuda refused to go into detail on the amount of funds they would pocket from the asset liquidation and divestments.

Pertamina president director Nicke Widyawati said the company planned to liquidate and divest its stakes in 25 direct and indirect subsidiaries to make its business more efficient and focus more on its core business.

“We plan to liquidate and divest our stakes in eight subsidiaries this year and the rest would continue next year,” she said during the video conference. Nicke did not mention the names of the companies or their businesses, but said that many of them were no longer operational.

Telkom plans to reduce its subsidiaries in the next two years as nearly half of them, along with its sister companies, overlap. The company’s president director, Ririek Adriansyah, said that, of the 49 direct and indirect subsidiaries in its portfolio, around 20 companies had business segments that overlapped and they therefore could be merged gradually until 2021.

Read also: Garuda, ‘severely affected’ by COVID-19, may restructure bonds: Minister

Garuda Indonesia is poised to follow in Telkom’s footsteps, with president director Irfan Setiaputra saying that the company would merge six of its subsidiaries.

“Among them are our online logistics platform Garuda Tauberes and our aircraft charter subsidiary,” he said.

The Garuda Tauberes platform would be merged with its cargo unit to make the business more efficient. The aircraft charter subsidiary would be merged with the parent company, Irfan added.

Center of Reform on Economics (Core) Indonesia economist Piter Abdullah said the ministry’s decision was difficult to comprehend, noting that subsidiaries and sister companies needed to be established for profitability and efficiency in the first place.

“If those subsidiaries were meant to create inefficiencies and losses, the minister should look into possible legal violations,” Piter said, calling for transparency.

“We need to wait for a further explanation from the SOEs Ministry. Which subsidiaries are to be liquidated? Is it really because they are making losses?

“Business rationing can benefit other parties by way of reducing competition or through the acquisition of state firms’ subsidiaries that are actually profitable.”