State-Owned Enterprises Fund Scrapped Over Legal Problems

Faisal Maliki Baskoro

Jakarta. The government has canceled plans to create a state-owned enterprises investment fund that would have helped finance infrastructure projects.

Plans for the fund, which would have used government minority stakes in partially privatized state-owned enterprises to raise money, were apparently illegal.

Muhammad Said Didu, secretary at the State-Owned Enterprises Ministry, said on Tuesday that the proposed fund conflicted with a law giving the Finance Ministry control over the government’s minority stakes.

“According to letter S-377/MK-06/2010 from the Finance Ministry to the SOE Ministry, dated August 2, managing minority shares is still the authority of the Finance Ministry, as stated by the State Financial Law,” Didu said.

The planned investment fund, called the SOE Fund, was to rely on funds raised by state investment company Danareksa Capital, which would have been charged with managing the government’s minority shares in nine companies.

Danareksa Capital does not yet exist — it was to be established specifically for the SOE Fund project, and would have been a subsidiary of state brokerage Danareksa.

Plans called for Danareksa Capital to use the minority stakes (valued at about Rp 13 trillion, or $1.44 billion) as collateral for loans to finance the SOE Fund. The ministry expected the plan to generate up to Rp 40 trillion.

The problem, Didu said, is that the State-Owned Enterprises Ministry is not allowed to give such instructions to Danareksa.

“If Danareksa wants to manage those minority shares, let it happen naturally, and let them do it independently from business to business,” he said.

Didu said any plan for Danareksa Capital to manage the stakes could only have been agreed upon by Danareksa and the companies themselves. The ministry’s plans would have required it to meddle in the affairs of the companies, which is not allowed.

“The Finance Ministry is the authorized owner of the government’s minority shares,” he said, reiterating that the State-Owned Enterprises Ministry was not allowed to instruct Danareksa to manage the shares.

Establishing the fund had been a priority of former State-Owned Enterprises Minister Sofyan Djalil, who passed the idea to the current minister, Mustafa Abubakar.

The ministry also had hoped the SOE Fund could eventually be transformed into a sovereign wealth fund, something the government has wanted since 1998.

“At first it sounded like a good idea, but it lacks a legal basis and the form it would have taken meant that the ministry would have interfered with businesses,” Didu said.

Hadiyanto, director general of state wealth at the Finance Ministry, said his ministry understood the principle of the SOE Fund, but that legal issues hampered its establishment.

“The scheme was intended to support the expansion of SOEs and support infrastructure development, but it still needed a strong legal basis,” he said.

The SOE Fund was originally planed to begin operation on June 30, and was intended to plug a hole in state company equity financing for infrastructure investment projects.

The State-Owned Enterprises Ministry had previously said Danareksa’s partners in managing the fund would be brokerages Danareksa Sekuritas, Bahana Securities and Mandiri Sekuritas, state-owned asset management company Perusahaan Pengelola Aset and Jamsostek Investment Corporation, a not-yet-established division of state insurance company Jamsostek.