Photo by SOEs Ministry

JAKARTA (TheInsiderStories) – Indonesian President Joko Widodo has begun execute a plan to establish a business sector holding state-owned companies during his term, to increase global competitiveness. The plan was initiated by the State Owned Enterprises (SOEs) Ministry, and was later discussed by the House of Representative in order to secure their approval.

Firstly, government plans to establish 16 state-owned holding companies. Currently, Indonesia only has four holding companies, in four sectors: fertilizer, cement, plantations and forestry.

Through a holding mechanism, ownership of SOEs will be transferred to each respective SOEs holding company, which in turn will be wholly-owned by the government. By this plan, the government aims to increase the number of SOEs in the Fortune Global 500 list from two in 2015 to six by 2019.

In August 2016, the Ministry proposed potential holding companies for six sectors. The Ministry plans to designate PT Pertamina (oil and gas), PT Indonesia Asahan Aluminium (Mining), PT Hutama Karya (toll roads and infrastructure construction), PT Perum Perumnas (housing construction), PT Danareksa (financial services) and Bulog (food commodities) to hold shares of other SOEs in their respective industries.

Those companies were chosen to lead holding, because their shares have not yet been listed on capital markets. This is to affirm the state’s dominance in holding ownership.

By the end of 2019, Ministry of SOEs aims to establish 14 SOEs: holding companies in at least four sectors, namely, shipbuilding and heavy equipment manufacturing, maritime transportation, pharmaceuticals and insurance, are expected to be established promptly.

According to Minister of SOEs Rini Soemarno, the aim of the holding plan is to create synergies between the state-owned companies. Soemarno expects that mergers or consolidation of SOEs will reduce duplication and fragmentation and create economies of scale.

The government also hopes that with a holding scheme SOE’s can strengthen and leverage investment, in order to contribute to economic development while limiting their reliance on the state budget.

Establishment of holding organs in six sectors can also facilitate the coordination of similar SOEs to deliver government programs. For example, holding in the housing sector will facilitate realization of the 1 million homes program, led by Perum Perumnas.

The establishment of six state-owned holding companies will also strengthen state-owned firms from the asset side. Ministry of SOEs targets the total value of assets of all state-owned companies in 2019 to reach Rp7,000 trillion, growing by 40 percent compared to 2016 assets of Rp5,000 trillion.

The largest asset will be recorded by the holding organ of the state-owned financial services company, which is estimated to grow from Rp2,510 trillion by the end of 2015 and could exceed Rp5,000 trillion in 2019, while in oil and gas holding, the asset is estimated at US$72.4 billion as of last year.

Toll road and construction holding assets are estimated to grow from Rp99.2 trillion in 2015 and are targeted to reach Rp 381.9 trillion by 2019. For housing holding, assets are expected to grow from Rp 42 trillion in 2015 to Rp 95 trillion by 2020.

Meanwhile, holding assets of mining are expected to increase from Rp182 trillion in 2016 to Rp270.5 trillion by the end of 2019. The food holding assets will grow larger, from around Rp31.5 trillion in 2015 to Rp 52.5 trillion in 2019.

Some state enterprises have formed consortiums or joint ventures to carry out large-scale projects. These efforts allow SOEs to test their ability to coordinate business activities. Some also have merged their management functions, enabling them to standardize operations and reorganize business portfolios before consolidating their ownership.

The Ministry has decided that Inalum will be the parent company, and will have a 60 percent share of coal miner PT Bukit Asam Tbk (IDX: PTBA), tin miner PT Tambang Timah Tbk (IDX: TINS) and gold miner PT Aneka Tambang Tbk (IDX: ANTM). Inalum will also hold the part of 51 percent of the government’s shares in copper and gold producer PT Freeport Indonesia.

PT Pertamina will serve as holding company in oil and gas sector. PT Perusahaan Gas Negara Tbk (IDX: PGAS) will become Pertamina’s subsidiary (and PT Pertamina Gas will become a subsidiary of PGAS).

Bulog will be the parent of several state-owned food sectors, such as PT Sang Hyang Seri, PT Pertani, and PT Perdangan Indonesia. Meanwhile PT Danareksa will become the holding organ of state-owned financial services, including banking.

Housing provider Perum Perumnas becomes the parent company of state-owned housing companies including PT PP Tbk (IDX: PTPP) and PT Adhi Karya Tbk. For toll road construction sector, toll road operator PT Hutama Karya will be appointed as its holding.

Soemarno suggests some holding bodies can be formed this year. Most likely the previously-formed holding organs include oil & gas and mining. The companies that will enter the holding are intensive enough to coordinate.

One of the rules touched upon is Government Regulation Number 44 Year 2005, concerning Procedures of Inclusion and Administration of State Capital in State-Owned Enterprises and Limited Liability Company. There needs to be a revision of the government regulation to enable entering a holding scheme.

The ministry has decided that Inalum will be the parent company and will have a 60 percent share of coal miner PT Bukit Asam Tbk (IDX: PTBA), tin miner PT Tambang Timah Tbk (IDX: TINS) and gold miner PT Aneka Tambang Tbk (IDX: ANTM). Inalum will also hold the part of 51 percent of the government’s shares in copper and gold producer PT Freeport Indonesia.

Recently, President Joko Widodo has approved the proposal of SOEs Ministry to form six holding companies of mining, oil and gas (oil and gas), housing, toll roads, financial services, and food.

PT Pertamina will serve as holding company or holding company in oil and gas sector. PT Perusahaan Gas Negara Tbk (IDX: PGAS). will become his subsidiary Pertamina’s subsidiary and PT Pertamina Gas will become a subsidiary of PGAS).

In the mining sector, Inalum will be holding of mining. Bulog will be the parent of several state-owned food sectors, such as PT Sang Hyang Seri, PT Pertani, and PT Perdangan Indonesia. Meanwhile PT Danareksa will become the holding of state-owned financial services, including banking.

Housing provider, PT Perum Perumnas becomes the parent company of state-owned housing companies such as PT PP Tbk (IDX: PTPP). and PT Adhi Karya Tbk. For toll road construction sector, toll road operator PT Hutama Karya will be appointed as its holding.

Soemarno targets there are some holding that can be formed this year. Most likely the previously formed holding is oil and gas and mining. The companies that will enter the holding are intensive enough to coordinate.

One of the rules touched upon is Government Regulation Number 44 Year 2005 concerning Procedures of Inclusion and Administration of State Capital in State-Owned Enterprises and Limited Liability Company. There needs to be a revision of the government regulation by entering a holding scheme.

Writing by Elisa Valenta, Email: elisa.valenta@theinsiderstories.com 

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