Mining and Energy Holding Ready To Rock ‘n’ Roll

Photo by The Insider Stories

JAKARTA (TheInsiderStories) – The state-owned enterprises (SOE) Ministry is expected to establish holding company mining and energy sector, by the end of this year at the latest. While the establishment of financial service holding, construction and food is still struggling with processes and its expected to establish in 2018.

Minister of SOEs Rini Soemarno said on Wednesday (20/9), the process of establishment of mining and energy holding on going and its expected to form soon. Fajar Harry Sampurno, Deputy for Mining, Strategic industries and Media at the SOEs Ministry, recalled how the concept of a SOEs holding structure was initiated in 2006 – but the plan stalled at that time.

Based on that bitter experience, the SOEs Ministry has invested more preparation this time around, ranging from the longer socialization of SOEs until cross-moves of top executive positions between SOEs that are to be merged or consolidated.

That experience has led to the establishment of four SOEs holding organs: PT Pupuk Indonesia (fertilizer), PT Semen Indonesia Tbk (cement), PT Perkebunan Nusantara (plantations), and Perum Perhutani (forestry). A similar strategy has also been applied in the process of a mining holding establishment, with PT Indonesia Asahan Aluminium (Inalum) as the parent company.

“We have carried out a socialization since June of last year. We were discussing the plan with labor unions in many regions, including Halmahera, Riau and Kalimantan, as well as North Sumatra, to overcome reluctance,” he told The Insider Stories.

He explained how the Ministry also move members of Boards of Directors as well as Boards of Commissioners between PT Inalum, coal miner PT Aneka Tambang Tbk (IDX: ANTM), tin miner PT Tambang Timah Tbk (IDX: TINS), and PT Bukit Asam Tbk (IDX: PTBA), to be merged under a mining holding company. The move is important, to enable a full understanding among them that the four SOEs need the merger, due to similar industrial characteristic as well as strengthening capital to leverage financing.

“The government draft decree has been completed. But it still needs to be harmonized with other regulations before being signed by the President,” he said.

According to the Ministry’s calculation, the holding company concept will strengthen the financial capacity of mining holding with Rp106 trillion in assets, originating from Rp24 trillion in liability and Rp82 in equity. It also expected to increase by Rp270 trillion as of the end of 2019. The SOEs Ministry has instructed the mining holding company to acquire the shares of PT Freeport Indonesia as a subsidiary of the mining holding company.

The mining holding company has become a key strategy for the acquisition of 41.64 percent of PTFI shares – to confirm the Indonesian government as the majority shareholder of 51 percent – at a cost of $5.8 billion (Rp77 trillion) without mine reserves or $15.9 billion (Rp212 trillion) with mine reserves, located in Grasberg, Papua.

Fajar said the SOEs Ministry still awaiting the results of negotiations between the Ministry of Energy and Mineral Resources and Freeport McMoran (NYSE: FCX) about the value of PTFI shares, with or without mine reserves as a base for estimation. However, he assures the public that the government is trying to get the best deal of PTFI shares without any mine reserves consideration.

Matching the mining sector, the oil & gas holding company is facing legal issues: two oil & gas companies, namely, PT Pertamina and PT Perusahaan Gas Negara Tbk (IDX: PGAS), will be merged with Pertamina as the parent company.

Consolidation of the two companies will enlarge the financial capacity by an estimated $72.4 billion (Rp960 trillion) in assets. Fajar said the smooth transition of the oil & gas sector holding company continues, including cross-moves of top executive between companies.

Fajar said the holding establishment depends heavily on the acceptance of stakeholders. Thus, socialization from the bottom to the top layer becomes a key. He pointed out how the mining holding company will be formed in the near future, because the top executives of mining SOEs welcome the government plan to merge the companies. “They are compact,” he said.

If the two holding companies are successfully established this year, the strategy will apply to remaining sectors. The Ministry has set a target to establish four other holding companies beyond mining and oil & gas in 2018, namely, construction of infrastructure, housing construction, food commodities, and financial services.

By the end of 2019, the government expects to be able to establish another four holding companies, in shipbuilding and heavy equipment manufacturing, maritime transportation, pharmaceuticals, and insurance. Thus, there are to be 14 SOE holding companies in total.

The infrastructure construction holding company is expected to be established after the mining and oil & gas holding company. The construction SOEs that will be merged are PT Hutama Karya, PT Waskita Karya Tbk (IDX: WSKT), PT Jasa Marga Tbk (IDX: JSMR), PT Wijaya Karya Tbk (IDX: WIKA), PT Indra Karya, and PT Yodya Karya, with Hutama Karya as the parent company. Due to the fact that the Ministry is still preparing legal aspects, the construction holding will be announced as soon as earlier the following year.

The fact is that the holding establishment in the financial service sector will involve a profusion of stakeholders at least four largest SOE banks: PT Bank Rakyat Indonesia (IDX: BBRI), PT Bank Mandiri  Tbk (IDX: BMRI), PT Bank Negara Indonesia Tbk (IDX: BBNI), and PT Bank Tabungan Negara Tbk (IDX: BBTN). PT Danareksa – an investment banking firm – will act as ‘parent company’ leading the four banks, apart from PT Pegadaian and PT Permodalan Nasional Madani. Fajar said, the holding company in the financial service sector still far from being realized, declining to comment further.

Aloysius K Ro, the Ministry’s Deputy for Business Restructuring and Development, said that the main concept of SOEs holding is that the parent company will be assigned as the strategic company. Inalum, for instance, will control the new subsidiaries as well as the existing core-business Inalum subsidiary. Thus, Inalum as parent company will no longer run the operational side of the business.

Aloysius commented that the prolongation of SOE holding companies is reasonable because they require long and mature preparation. The Indonesia government has 118 SOEs; some are big firms that need comprehensive study aside from continuous socialization with stakeholders, including legislative units.

Writing by Rahmat Fiansyah, Email: rahmat.fiansyah@theinsiderstories.com