January 12, 2017 7:15 pm JST

Indonesia pressing ahead with SOE mergers

Widodo looks to shape up state-owned companies ahead of foreign onslaught

ERWIDA MAULIA, Nikkei staff writer

A view of state-owned oil company Pertamina's refinery in Cilacap, Central Java, Indonesia © Reuters

JAKARTA -- The Indonesian government has laid the legal groundwork for consolidation of the country's more than 100 state-owned companies, hoping to make them more competitive amid a wave of deregulation that may bring more foreign rivals into the country.

A new regulation approved by President Joko Widodo on Dec. 30 but only revealed to the public Wednesday creates a legal basis for transferring the government's stake in one SOE to another company appointed as a holding entity without parliamentary approval. 

"To increase the value and optimize the role of SOEs ... as well as to improve administration, the government thinks the new regulation is necessary," the office of the cabinet secretary said on its website. An official at the Ministry of State-Owned Enterprises said that even after the government transfers its stakes to designated holding companies, it will retain control over their management by retaining the "Series A" shares that give it special voting and veto rights under Indonesian law.

SOEs in the energy and mining sectors are expected to be the first to merge under the new rules. The country's largest oil and gas company, Pertamina, which is wholly owned by the government, has been designated as the holding company for publicly listed natural gas distributor Perusahaan Gas Negara. Aluminum producer Inalum, also 100% owned by the government, will be likely chosen as the holding company for diversified mining and metals company Aneka Tambang, tin miner Timah and coal producer Tambang Batubara Bukit Asam.

The energy and mining holding entities were originally scheduled to be set up in 2016. "We want to strengthen our SOEs through the establishment of the holding [companies] so that they can expand outside the country and become world-class companies," Widodo told a cabinet meeting last year.

Only a handful of Indonesian SOEs are profitable and most are facing headwinds from Widodo's deregulation push, which includes a landmark decision last year to open up dozens of sectors to foreign investors.

State Enterprise Minister Rini Soemarno has said on several occasions that the holding entities will create greater synergies and cost efficiency. As an example, she mentioned overlapping construction of gas pipelines in specific areas by Pertamina's subsidiary Pertagas and PGN, saying the holding companies would eliminate this problem.

The holding companies will also expand the SOEs' equity, giving them more access to credit, facilitating larger investments. "With the holding [company], I'm sure Pertamina and PGN will grow stronger in the future ... and at one point become one of the top three [oil and gas companies] in the world," the minister said.

The holding company for the mining industry, meanwhile, will allow state-owned miners to team up to acquire some of the country's largest mineral reserves, which at present are owned mostly by private companies, foreign and local, Soemarno added.

The government is working to establish holding companies for SOEs in at least four other sectors: finance, housing, construction and food. Smaller cement, fertilizer, plantation and forestry SOEs were merged previously under four different entities, but consolidation remains incomplete.  

The State Enterprise Ministry originally proposed the merger of all sectoral holding companies into one "super holding," similar to Singapore's Temasek Holdings, but parliament has not approved that long-term proposal.

Nikkei staff writer Wataru Suzuki contributed to this report.

Asia300

PT Perusahaan Gas Negara (Persero) Tbk

Indonesia

Market(Ticker): JKT(PGAS)
Sector:
Industry:
Industrial Services
Oil & Gas Pipelines
Market cap(USD): 4,930.41M
Shares: 24,241.50M
Asia300

PT Aneka Tambang Persero Tbk

Indonesia

Market(Ticker): JKT(ANTM)
Sector:
Industry:
Non-Energy Minerals
Other Metals/Minerals
Market cap(USD): 1,617.20M
Shares: 24,030.76M
Asia300

PT Tambang Batubara Bukit Asam (Persero) Tbk

Indonesia

Market(Ticker): JKT(PTBA)
Sector:
Industry:
Energy Minerals
Coal
Market cap(USD): 2,071.79M
Shares: 2,304.13M

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