TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
2021: A year of ailing state-owned enterprises
SOEs in banking, telecommunications among best performers, reporting healthy profits
Change Size
T
he past year proved to be another challenging one for Indonesia’s public sector as many state-owned enterprises (SOEs) found themselves under growing financial pressure.
With travel restrictions dealing a devastating blow to the aviation industry, national flag carrier Garuda Indonesia defaulted on coupon payments for its sukuk in June. That sparked efforts to restructure some US$9.8 billion (Rp 140.7 trillion) of the airline’s debt.
The largest publicly listed, state-owned construction company by assets, PT Waskita Karya, has been busy restructuring some Rp 89.73 trillion in debt reported in June after sustaining Rp 7 trillion in net losses in 2020.
Other companies restructuring are state-owned plantation holding firm PTPN III, which reported more than Rp 43 trillion in debt earlier this year, while state-owned steelmaker PT Krakatau Steel was recently under scrutiny for struggling to make progress on its $2 billion debt restructuring plan.
Two SOEs dominating the energy sector, PLN and Pertamina, each carry a debt load to the tune of around Rp 500 trillion, though large revenue makes this more manageable.
By contrast, SOEs in banking and telecommunications were among the best performers this year, reporting healthy profits.
Economists told The Jakarta Post that some of the ailing SOEs were feeling the overall impact the prolonged pandemic has been having on businesses as a whole. However, mismanagement and unhelpful government policies – issues that existed long before the pandemic – are thought to have compounded the financial strain in many cases.
“The pandemic is just the tip of the iceberg. In fact, it is just speeding up the process of these problems coming to the surface,” Center of Economic and Law Studies Bhima Yudhistira said on Dec. 18.
Read also: SOEs’ financial losses hurt overall economy
The public sector has been a major driver of Indonesia’s economy as SOEs contributed at least 16 percent to the country’s GDP in 2019. SOEs also play a crucial role in the government’s infrastructure plans and in providing public services.
Bhima went on to say that fraud, window dressing and corruption were quite common aspects of mismanagement at SOEs. In 2019, Garuda was found guilty of filing incorrect financial statements.
SOE Minister Erick Thohir admitted at various occasions possible corrupt practices at PTPN III and Krakatau Steel and has vowed to investigate the firms.
Institute for Development of Economics and Finance (Indef) economist Abra Talattov pointed out that many government projects had been assigned without a proper assessment of SOEs’ financial capacity and leverage, causing many to dwell in mounting debt.
“Many SOEs are under financial strain because of aggressive government-assigned projects,” Abra said on Dec. 9.
Waskita Karya, for instance, was assigned to acquire around a dozen stalled toll road projects from private companies in the period of 2015 to 2019, on top of five projects it already had.
State-owned construction company Hutama Karya ended up with some Rp 79.2 trillion in debt after being assigned toll road projects in areas of Sumatra that have little traffic.
State-owned airport operator PT Angkasa Pura I carries a debt load of around Rp 32.7 trillion after being assigned to build the recently completed New Yogyakarta International Airport.
Read also: Forget protection: Jokowi tells SOEs to get out of their comfort zone
Cash injections
The government has responded by topping up state capital injections (PMN) for this year by adding Rp 33.8 trillion to the earlier disbursements of Rp 35.13 trillion, and that is still lower than what had been initially proposed.
Total PMN disbursed to SOEs and other state-owned commercial institutions this year reached Rp 84.28 trillion, beating the 2015 record of Rp 70.63 trillion due, Finance Ministry data show.
The government is set to disburse another Rp 35.39 trillion next year while also providing Rp 21.48 trillion through the so-called “investment financing reserve”.
The SOEs minister told lawmakers in June that these funds were meant to keep projects going and help some troubled SOEs get back on their feet.
Indef’s Abra said those injections should be accompanied by measures to solve problems within the SOEs and warned the government against simply citing national priorities and future economic benefits to justify the disbursements.
Return on equity from almost three in four PMN-receiving SOEs was less than the borrowing cost of 10-year government bonds, implying that the government was losing money through this policy, Finance Ministry data show.
The same data show that more than half of the PMN-dependent SOEs had debt-to-equity ratios above peers in the same industry, while almost a tenth of them had a negative ratio, meaning they had more liabilities than assets.
“We must ensure that SOEs are not reliant on public funds,” Abra said.
Read also: Indonesia to spend big on infrastructure amid pandemic pressures
The other way
SOEs Minister Erick Thohir said on Dec. 2 that the ministry had come up with a plan to reduce state-owned firms’ reliance on the state budget by conducting initial public offerings and rights issues to acquire the capital needed to restructure. Debt-laden Waskita Karya is among those that did the latter alongside its injection.
The ministry also plans to focus SOE businesses on core operations by eliminating unrelated subsidiaries, such as for laundry services or school uniforms, through liquidation or privatization, arguing that these small entities had become a parasite causing many SOEs to fall ill or significantly reducing their performance.
The ministry is also looking to the country's new wealth fund, the Indonesia Investment Authority (INA), to help restructure SOEs, including the debt-laden Krakatau Steel. Previously, the INA had been asked to take over toll roads from debt-laden construction SOEs.
The SOEs Ministry said in October that it had asked the INA to help the newly restructured debt-laden state-owned port holding firm PT Pelindo III find investment partners.
The idea to involve the INA was lauded by University of Indonesia SOE expert Toto Pranoto. He said on Dec. 14 that it could serve as a financing alternative for SOEs, so that they would not entirely rely on debts. “This could be a better financing method for SOEs,” he contended.
However, INA chief investment officer Stefanus Ade Hadiwidjaja said on Dec. 16 that the fund needed to review the plan as it was bound to look at the risk-return perspective to provide investors optimal risk-adjusted returns, implying that the fund was not at liberty to get involved in SOEs.
“So, if the opportunity from SOEs is something that is investable, the INA can play a role,” Stefanus said.
CELIOS’ Bhima Yudhistira said IPOs might not solve SOEs’ problems, unless the government was willing to overhaul the way it handled SOEs.
He argued, the government’s continued role in choosing boards and commissioners and the assignment of state projects meant problems at SOEs were likely to persist, as the government was not showing signs of rethinking its priorities.
