Reforming State Enterprises: A Chat With Minister Mustafa Abubakar
Muhammad Al Azhari
State-owned enterprises play a prominent role in the economy. At the end of last year, 141 SOEs controlled assets worth Rp 2,150 trillion ($230 billion) — a figure equivalent to almost half of the country’s GDP.
The government plans to consolidate the SOEs as part of its plan to improve their performance. State-Owned Enterprises Minister Mustafa Abubakar visited the Jakarta Globe recently to talk about the how the plan was progressing.
What’s your strategy to improve SOE performance?
First, I am mapping their strength. This is an ongoing process, which I’ve taken over from the previous minister Sofyan Djalil. Once the mapping is done, I will try to come up with a way to group SOEs which are in the same sectors under holding companies. We will then implement a right-sizing program, to match the size of the SOEs to the field they are in to increase efficiency and maximize profit. We will also select some SOEs which we feel are the most appropriate ones to partially-list.
How many SOEs would you like to list in the next five years?
I can’t tell you that yet, but we do aim to list more SOEs. We are reviewing things at the moment.
How is the plan to consolidate the state-owned banks going?
We have four state-owned banks. Under Bank Indonesia’s “single presence” policy, the number of banks [owned by one owner] must be reduced to one. We acknowledge this but we also see a need to retain differentiation in various banking sectors.
PT Bank Mandiri and PT Bank Negara Indonesia are strong in the corporate sector, while PT Bank Rakyat Indonesia is bigger in the small to medium-sized enterprises market. PT Bank Tabungan Negara is more focused on mortgage lending. We have asked Bank Indonesia to give us a chance to review the concept of the single presence policy for state lenders.
How will you do this?
I have requested a two-year delay for state-owned banks to adhere to the policy. We need to get together with Bank Indonesia and the Finance Ministry to discuss if the policy should apply to state lenders and what some alternate solutions might be. But I hope it won’t take as long as two years to do this.
How are plans to create SOE holding companies in other sectors going?
The first sector we are looking at is the fertilizer sector. There are five state-owned fertilizer companies that will be integrated under Pusri [PT Pupuk Sriwijaya ], which will be a holding company.
We haven’t gotten into the details of how we will create the holding company yet. I think Pusri will continue to be an operating company but it will also become an umbrella company for the other firms. It will perform roles like marketing and investment plans for all of the companies so they only have to focus on production and distribution.
In the cement sector it will probably be similar. We aim to put three state-owned cement firms under PT Semen Gresik.
What about in agri-business?
We will group companies according to the commodities they produce, so there will be SOEs for palm oil, rubber, sugar, tea etc. We may have just five or six companies. The advantage is they will become more specialized and focussed on their particular commodity. In the forestry sector we have five state-owned companies and we definitely see a need to consolidate them.
What are some of the obstacles to consolidating the SOEs?
We have to be very careful not to fall afoul of the Business Competition Supervisory Commission [KPPU]. We don’t want to be accused of setting up monopolies. However, at present many of our SOEs compete with one another and it is usually unhealthy competition. This is the challenge.
We also need to pay attention to how the new companies will be taxed. That’s why we need to cooperate closely with the Directorate General of Taxation.
There are also concerns that by restructuring under holding companies, management will become too bureaucratic. However, we don’t have to follow current practice in Indonesia. Instead, we plan to learn from the best practice in developed countries.