TEMPO.CO, Jakarta - There are too many state-owned enterprises (SOEs) in Indonesia. The dividends and other benefits they bring to the public are not worth all the problems the government has had to endure in maintaining and managing them. Many of these companies find it difficult to compete in the marketplace. There are massive inefficiencies in the plantation companies. And SOEs also have to carry out ‘national duties’ that cause their debts to soar.
At present, Indonesia has 118 SOEs. Out of these, in the first semester of this year, 24 made a combined loss of Rp5.8 trillion. Perhaps this is not such a large sum. But it is an illustration of the weakness of all aspects of corporate management, from financial and managerial to operational, and the noble aims of a state-owned company.
The government has to constantly monitor the capitalization of SOEs, both for their own health and for their expansion in support of government programs. To do this, every year the government provides a state capital injection (PMN) which is always far larger than the income from dividends from all the SOEs. In 2016, the PMN was Rp54 trillion, while dividends totaled only Rp37 trillion. To put it simply, the government lost Rp17 trillion.
In an increasingly open and competitive marketplace, many SOEs also find it tough to compete. Two of these are Garuda and Krakatau Steel. At a time when annual air passenger growth is at nine percent and the price of jet fuel has been stable for the last five years, Garuda’s sales are stagnant. In the first half of 2017, Garuda made a loss of almost Rp4 trillion. As there has been little change in its long-term debt, there are clearly operational problems at Garuda.
Things are even worse at Krakatau Steel. The company has made losses every year since 2012. Sales have fallen continuously despite domestic steel consumption rising steadily at 3.3 per annum for the last five years. What is worrying is the long-term debt, which was 400 percent higher in 2016 than in 2012. With ever weakening sales, this rise in debt could become a major problem in the next few years.
Construction services face another problem. The heavy financial burden they bear during the construction of infrastructure means they have to take on more debt. The liabilities of Wijaya Karya rose 31 percent to Rp14 trillion after it won the mass rapid transit and Jakarta-Bandung fast rail link projects. Hutama Karya’s debt in 2016 rose even faster by 132 percent to Rp16.5 trillion, after it began working on toll roads.
There is nothing wrong with the infrastructure policy. Indonesia lags far behind its neighbors like Malaysia and Thailand in attracting foreign investment. But it is dangerous to put too much of a burden on companies that were initially in good shape. They could fall into a debt trap.
Therefore, the government should begin to relinquish control of the SOEs that are unable to compete in the marketplace and that do not bring major benefits to the public before their condition worsens. The government must learn from the experience of Merpati and Kertas Leces, which now has ceased operations but could not be sold.
There are many who will oppose the sell-off of state assets seen as strategic, such as Garuda and Krakatau Steel. But if these companies are retained, the government will not be able to bear their losses. Extraordinary people and substantial amounts of capital are needed to manage 118 SOEs. It is not easy to find such people. And we do not have that much money anyway.
Read the full article in this week's edition of Tempo English Magazine
