TEMPO.CO, Jakarta - The government must guarantee that the establishment of a parent mining company or holding, does not cause business or financial losses to the state. Ensuring that state-owned enterprises (SOE) play a part in bringing about prosperity is far more important than the ambition to have an Indonesian company in the Fortune Global 500.
The establishment of this parent mining company was planned by the SOE ministry last year and was finally approved by President Joko Widodo through Government Regulation No. 47/2017 on the injection of state funds for buying shares in Indonesia Asahan Aluminium, also known as Inalum. The regulation, which came into force last Monday, transfers 65 percent of government shareholding in Aneka Tambang, Timah and Bukit Asam to Inalum and revokes the SOE status of all three companies.
With the end of the SOE status, control of the three companies is passed to Inalum. The government had held a 100-percent shareholding since the companies were taken over from the Japanese Aluminum Companies Consortium (NAA) in December 2013, during the Susilo Bambang Yudhoyono administration. This regulation also increases Inalum's capital assets in the form of the government's 9.36-percent shareholding in Freeport Indonesia.
This is not the first time a parent company has been established through the transfer of shares in government companies to another SOE. Nine years before his resignation, President Suharto gave Pupuk Sriwijaya- now Pupuk Indonesia Holding Company- control of shares in four state-owned fertilizer companies. Susilo Bambang Yudhoyono's administration also established parent cement and plantation companies using almost identical methods.
However, this is the first time the transfer of government shares involves an SOE listed on the stock exchange, in other words, a public company. Around 35 percent of the shares in ANTM, TINS and PTBA- the three companies' stock symbols- are publicly held. And this is where problems start.
Quoting Regulation IX.H.1 on the takeover of public companies, Bursa Efek Indonesia, the Indonesian stock exchange company, says that Inalum, as the prospective buyer of stocks in the three companies, must offer the shares to public shareholders. The exchange authority's reasoning is that public investors must be protected because the transfer of shares is a material change. The government takes the opposite view, saying that the government is still the ultimate shareholder through its A-series shares- known as bi-color shares because of their special powers laid down in the company articles- in the three companies.
This disagreement shows that there is still unfinished business in the establishment of this holding company. Legal certainty is needed, particularly to prevent similar problems arising in the future during the planned establishment of SOE parent companies in the financial, energy, toll road, construction and housing sectors, which will also involve public state-owned companies.
Turning Aneka Tambang, Timah and Bukit into subsidiaries is also not without risks. Although the government will still be the main shareholder, it will no longer have direct control of the three corporations with total assets of Rp59.05 trillion. The control exercised through the parent company will provide an opening for irregular practices.
In the last two years, the Supreme Audit Agency has repeatedly cautioned about the trend of turning SOE subsidiaries into new vehicles for the misuse of state funds. A 2015 audit of 45 SOE subsidiaries- of around 600 companies- resulted in 810 findings. Most of these irregularities had the potential to cost the state trillions of rupiah.
The government must ensure that the mining SOE group, which has a revenue goal of US$22 billion in 2025, is managed in line with principles of good corporate governance.
Read the full article in this week's edition of Tempo English Magazine
