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JAKARTA (TheInsiderStories) – State-owned enterprises (SOEs) Minister Rini Soemarno has been assigned a special task by President Joko Widodo to merge SOEs under holding companies in six sectors, namely, mining, oil & gas, infrastructure construction, housing construction, financial services, and food commodities.

Rini stated that the SOE holding company is very important to strengthen them, as well as making them more efficient and transparent. Thus, the reasoning goes, SOEs will gain the capacity to compete not only in the domestic market, but also against multinational corporations on a global scale. This aim is also in line with the government plan to push more SOEs to enter the Fortune Global 500 list; at present only PT Pertamina made the list, ranked 289th with $36.5 million in revenue.

To ascertain the state of development of SOE holding company, TheInsiderStories has talked to Rini Soemarno, former President Director of Astra International.

Below is the detail interview:

Q: How does the government plan to establish holding companies?

A: The first holding company is in the mining sector and is still in process. I think it will be completed soon. The draft regulation is currently at the Secretary of State’s office, and we already completed the process of harmonization. God willing, it will be completed next month so we can hold a general meeting of shareholders.

Q: So, how many holding companies will be established this year?

A: Maybe two (holding companies): one each in mining and oil & gas. We already received legal permission because the Constitutional Court has rejected the request to annul Government Decree (PP) 72/2016 through judicial review. Harmonization of mining and oil & gas holding company regulations is also done.

Q: Hows about next year?

A: We have a plan in the pipeline to establish the holding companies in banking, construction related to toll-roads and housing. We are also try to establish the holding company in tourism. Garuda Indonesia (IDX: GIAA) has Aero Wisata. Then, there are Patra Jasa and Pesona hotels, owned by pawn company PT Pegadaian. We are trying to encourage them to synergize. We are also currently building 15 village economic centers in Borobudur, Central Java.

I expect more local tourism packages in the future. Many people want to take a vacation abroad, but we have to encourage them to visit local destinations. We have to open more domestic routes.

Q: Why has it taken so long time? What is the challenge?

A: Holding company establishment needs a similarity of mind and perception between SOEs, so they will understand what it takes to make a holding company more advanced, more rapid and the important part is more efficient. That’s why we merge similar SOEs in the mining sector, for instance, because mining is similar among all. A lot of that could be more efficient.

From the financing side, they will actually be stronger because with a holding company we expect the parent company can control SOEs’ capital needs. Therefore, capital utilization will become more efficient as well as more fulfilled.

Q: You ordered a holding company in mining to acquire PT Freeport Indonesia shares. Where are they going to get funding?

A: We have many sources of funding. We are still in the process of negotiating the Freeport divestment. We already proposed that the process should be finished at the latest by December 2018. Currently, our advisor as well as our lawyer team was discussing the timing and foremost the valuation, because the government and Freeport are still far apart in our calculations of share valuation. Freeport wants this but we see it differently.

Q: But the holding company in mining has not yet been established…

A: The mining holding company establishment is still progressing. But, it is not necessary to be formed (to acquire Freeport shares) because in principal, Inalum (PT Asahan Aluminium) will buy those shares. We are still finishing the procedure and expect it will be completed before the end of this year.

Writing by Linda Silaen and Rahmat Fiansyah