Driving the SOEs
February 11, 2011

It could be the toughest job in the world. While the pressure is visible, Minister of State-Owned Enterprises Mustafa Abubakar is pushing ahead on a number of fronts to make the sector healthier and profitable, not least through privatization. Albertus Weldison Nonto reports.


Mustafa Abubakar had every right to look tired. The 61-year-old had just returned to Jakarta from spending five full days travelling around the country dealing with aspects of his duties as state minister of state-owned enterprises.
The last thing he appeared to want was a grilling by the media. He politely asked the GlobeAsia team if he could reschedule, pleading that he felt “under-performed”. Told that deadlines were tight, he relented and agreed to a 15-minute session.
Facing the photographer, he appeared to lack confidence, not because he is camera-shy, but perhaps because he was thinking of what else the day had in store for him, with appointments stretching into the night. The interview completed, he said his goodbyes and bustled off to a cabinet meeting at the State Palace.  
Mustafa has had a busy few years. He first came to public attention as the acting governor of Aceh province in the wake of the 2005 peace agreement. Then he was appointed to head the National Logistics Agency (Bulog), before being elevated to the SOE ministry, where he has taken it upon himself to push against a tide of complacency. “We are the only ministry that has completed the process of bureaucracy reform, both by replacing staff and through organizational improvement,” he says.  
That is no mean achievement for a man who is in charge of a total of 142 SOEs, representing a major part of the formal economy. In general, 40% of gross domestic product is contributed by the state enterprises, which have a market capitalization of around $80 billion and an asset value of $270 billion.
In 2010 the ministry expects that the companies it manages will contribute around Rp127 trillion or $14.1 billion to the national budget from dividends and taxes. While the numbers may sound impressive, Mustafa insists that much more can be achieved.

Constant transformation
Continuing transformation is essential if the SOEs are to become competitive and contribute significantly to the nation, Mustafa believes. Since the SOEs are present in virtually every segment of the economy, it is essential that they perform well and keep up with market trends.  
Besides strengthening good corporate governance (GCG), he also wants all directors at SOEs to instil professional corporate cultures and avoid the conflicts of interest that were so common in the sector in the past.
“I want the management of the SOEs to be dominated by strong entrepreneurial character. They also have to be good managers and even brilliant bureaucrats,” he says, adding that the emphasis must be on providing service, not on being served, as was the case in the past.  
To achieve transformation, he has set out four strategies: transformation of corporate culture, restructuring, strategic development and privatization.
The first strategy involves changes in mindset. He wants to see management at both the SOEs and his staff at the ministry change their view of the world by being business-minded, geared to improve human resources quality by recruiting good people, and applying benchmarking to become world-class companies.
On restructuring, he wants to apply right-sizing principles, cutting the number of companies in the SOE stable. Some of them, he notes, are involved in overlapping lines of business. There are at least 14 SOEs in the plantation sector alone, which can be restructured to become a single organization. “We want to make them able to compete, for example, with Malaysia's FELDA in the plantation business,” he says.
Forestry is another area where mergers can produce strong synergies and reduce bureaucracies. “We have been successful with the fertilizer companies,” he says with a smile. “From five we now have only one, PT Pusri, while the others have become operating companies.” Currently, he is pushing for the same result in the cement industry, where PT Semen Gresik Tbk. will become the holding company.
He also threatens to close non-performing companies. That sort of threat has had a positive effect: while in 2009 22 companies recorded losses, the number was down to only eight in 2010. By 2012 Mustafa wants to see every company profitable, even if it requires mergers, a change of status to a public service body (BLU) or by liquidating those that can’t stop their loss-making habits.  
“Take PT Balai Pustaka, the printing business. We made this company healthier and then changed its status to a public service body,” he says. Air carrier PT Merpati Nusantara Airlines, ferry service PT ASDP and eastern Indonesia cement-maker PT Semen Kupang are now much healthier and ready to expand, he adds.

Going public
Despite continuing obstacles from nationalist-minded interests, Mustafa is also keen to accelerate the privatization process, in order to capitalize on the momentum of high foreign investor interest.  He is pushing for 10 SOEs to go to the market during 2011.
Despite the recent controversy over the pricing of shares in the IPO of PT Krakatau Steel, he believes that going public creates more confident companies. “We have pushed this and we will always keep encouraging the SOEs to be privatized,” he says. He mentions, for example, Bank Tabungan Negara's impressive performance, with its share price soaring to about 140% of its level a year earlier.
Mustafa’s development strategies call for the SOEs to operate at the international level, by opening branches in foreign countries and letting them compete with international companies.  To achieve this, he wants to improve synergies so they can work together to establish a footprint. “For example Bank Mandiri in Malaysia can help Indonesian workers transfer their money to their home towns in remote areas via the 3,500 branches of PT Pos Indonesia, which are present throughout Indonesia.”
Mustafa understands that it still looks to the outside world as if his ministry is acting in slow motion. “It is true, because we have to take care of so many SOEs,” he admits. “For example, in our efforts to change management at 22 SOEs, we have to follow a long process through the ministry of finance and the cabinet secretary’s office to the presidential office. We have been working very hard on it, but the problem is we have to gather so many people, and have to follow the procedures,” he says.

IPO clearance
Mustafa reminds that improved levels of public communication will help the privatization process. Leading up to an IPO, there is a lengthy process that must be adhered to under the law. At times, lack of public communication leads to misunderstandings that hamper the process of improving the health of the SOEs. The problematic PT Krakatau Steel IPO made more work for his ministry, because he had to allocate more energy to respond to complaints and questions from the public.
In the future, he believes, good communication should be developed to create a more positive atmosphere with stakeholders.  Most important is to open good communications with the parliament in order to create a common perception about the government’s plans on privatization at the SOEs.
Mustafa adds that his ministry will be more selective in selecting SOEs to be privatized, to ensure they are really healthy and can provide more benefit for the country.  He declines to mention the SOEs he wants to see listed during 2011, saying they need to be examined seriously before any names are announced.
Already, privatized SOEs make up some 30% of the total market capitalization of the Indonesia Stock Exchange. This makes their role increasingly important at the same time that listing can help companies to realize their expansion plans.

Seeking synergy
Jimmy Gani, president director at PT Sarinah, says the transformation strategies undertaken by the ministry are on the right track. “In the end the numbers will tell the story, as has been proven at the stock market. The process itself is also important,” he says, adding that Mustafa consistently pushes the need for synergy.
Jimmy notes that Mustafa has proven his leadership capabilities and his ability to bridge the interests of different parties. During his term as interim governor of Aceh, he established a reputation for stepping carefully between the mine-field of different points of view so that the peace-building process and reconstruction could take place smoothly.
And, he adds, Mustafa makes a habit of inviting the management of SOEs to breakfast meetings where he calls on them to work together to achieve synergies rather than compete with each other, as they did in the past.  
Enlisting professionals from the private sector has helped cement the principles of good corporate governance at the SOEs. “Going public is important, and the base line is transparency and accountability, together with the application of risk management and avoidance of political intervention,” says Jimmy. Mustafa, he believes, has been successful in applying concepts which have been implanted in the SOE culture since Tanri Abeng headed the ministry back in 1997, but which have often been ignored in practice.  
Head of research at Bhakti Securities Edwin Sebayang says the SOEs, especially those listed on the stock market, are increasingly important because of benchmarking of stock prices. In the banking sector, for example, Bank Mandiri leads share price movements while in the mining sector PT Aneka Tambang shares are the dynamic factor.
In general, says Edwin, SOE shares are good instruments for investment, especially for pension funds and other institutional investors because the companies rarely carry heavy debt loads. Dividends are made regularly, another plus for the institutional investor.
And, adds Edwin, the presence of SOEs in the stock market has allowed the bourse to scale up, becoming big and healthy.  He warns, however, that in the future government has to be more careful in selecting SOEs to be listed. He mentions PT Indofarma as a “sleeping stock” which sees very little trade.
“I really hope that the plantation sector is in the pipeline to be listed, as this sector has the capacity to drive the Indonesian economy forward. The size of the government plantations is huge,” he says.
Edwin urges the government to rethink the IPO plan for flag carrier Garuda. First, he says, the company should clear up its debt. And, he adds, competition in the industry, both in the domestic and international market, is getting tighter, making potential profits thinner.
“I would not force Garuda to go public without looking at the outlook for the industry,” Edwin stresses. The government should also listen to the opinions of people from other institutions before pushing companies to go public. After all, he says, the SOEs belong to the Indonesian people, so all parties should have the right to raise their concerns.  GA 

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