Returning SOEs Back to People

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  • State-owned Enterprises (SOE) Minister Erick Thohir monitors the trial stage of ventilators belonging to the Research and Development Department of the Energy and Mineral Resources (ESDM) Ministry at the Pertamina Jaya Hospital, Cempaka Putih, Thursday, April 16, 2020. TEMPO/Hilman Fathurrahman W

    State-owned Enterprises (SOE) Minister Erick Thohir monitors the trial stage of ventilators belonging to the Research and Development Department of the Energy and Mineral Resources (ESDM) Ministry at the Pertamina Jaya Hospital, Cempaka Putih, Thursday, April 16, 2020. TEMPO/Hilman Fathurrahman W

    TEMPO.CO, JakartaThe recent tug-of-war of political interests in the appointments of commissioners of state-owned enterprises (SOEs) can only be ended if the paradigm of managing state companies is fundamentally changed.

    WITHOUT this, the battles for positions in SOEs will remain and the performance of the companies that provide livelihoods for the public will continue to worsen.

    So far, the way SOEs has been managed has benefited the political elite in power at the time. Using the excuse of preserving the national interest or implementing development programs, state-owned companies have often been forced to ignore business calculations and suffer losses. In the long term, this model hampers the growth of SOEs and reduces their potential for making profits.

    It is time the government examined the option of relinquishing ownership of SOEs to the capital markets so that they can be completely owned by the public. With share ownership spread around millions of Indonesians, the profits of these giant companies would be enjoyed by the citizens of this country. As well as that, interventions of political interests that have so often shackled these SOEs would be eliminated.

    Without this kind of fundamental change, the dispute between the Indonesian Democratic Party of Struggle (PDI-P) politician Adian Napitupulu and SOEs Minister Erick Thohir regarding the appointment of commissioners in-state companies will never end. What is more, an investigation by this magazine has discovered that seats on the boards of commissioners of SOEs are routinely handed out to people put forward by the political parties and senior members of the cabinet. If they have not been nominated by people with political influence, there is no way that professionals have a chance of occupying key positions.

    The sale of shares in SOEs to the public will not violate the law that regulates state-owned companies should seek profits at the same time as providing public services. For example, the obligation to administer public sectors with minimal profits could still be achieved through the scheme of cross-subsidies like the one already in place.

    So far, the main factor that has made it difficult for SOEs to grow is the lack of clarity of indicators of their success in the eyes of shareholders. Although they make financial losses, the directors are still safe as long as the interests of the commissioners are satisfied. Conversely, if the commissioners are disturbed politically, even directors who manage to produce profits can be removed.

    The interests of these commissioners also vary. As political appointees, they have each have different characteristics. Not all of them have the growth of the company and its ability to make a profit as the main priority. This means that the directors have to be adept at reading the political map if they want to be safe.

    This state of affairs must be ended. Moreover, jostling for positions in SOEs now no longer take place behind closed doors, but out in the open before the public. An example must be set at the highest level. President Joko Widodo must stop offering positions of directors or commissioners of SOEs as political gifts for his supporters.

    The move by SOEs Minister Erick Thohir to draw up a road map for streamlining state-owned enterprises and encouraging professionalism of directors and commissioners is right, but it is not enough. All these efforts will come to nothing if the structure of SOEs ownership is not put right, especially if the practice of political parties nominating people for key positions in state companies prevails. Erick’s energy will be expended on political conflicts or sharing out political concessions.

    Reshuffling the composition of the boards of directors or commissioners of state-owned enterprises without resolving the fundamental problem of public ownership will also not go smoothly. Eric could be accused of taking advantage of his position for political interests, something that he has experienced.

    Of course, the reform of SOEs' share ownership must be carried out in stages. President Megawati Sukarnoputri began it when she sold off shares in Indosat for Rp4.6 trillion to Temasek. President Susilo Bambang Yudhoyono followed this with Government Regulation No. 33/2005 on the privatization of SOEs. Most of the state companies now traded on the stock exchange were privatized in the Yudhoyono era.

    Now it is the turn of President Joko Widodo to complete this process. The number of shares in SOEs sold to the public could be increased in stages until the majority is in the hands of the people. The existence of special red-and-white share that ensures the government still has a determining position could also be re-examined, especially if this position allows continued intervention in SOEs even though after they become public companies. With this model, in the end, the government will be simply a fair regulator in the interests of all the people of Indonesia.

    Read the Complete Story in Tempo English Magazine