JAKARTA -- Indonesia's State-owned Enterprises Minister Rini Soemarno on Thursday shrugged off Finance Minister Sri Mulyani Indrawati's warnings of a potential "default risk" at state utility PLN, pointing to the company's strategy to diversify funding sources.
Indrawati's warnings, described in a leaked letter to Soemarno and Energy Minister Ignasius Jonan that was widely reported in the media, exposed a growing rift between Indonesia's top economic policymakers over President Joko Widodo's massive infrastructure development program. The letter has triggered a fresh debate over the role of SOEs and whether they are taking on too much risk."It's natural for the Ministry of Finance to warn us," Soemarno said in a speech during a seminar on infrastructure development, calling Indrawati "more of a worrier than I am."
"But we know what we are doing, we know where we are. And we know how to take steps when there is a worst-scenario situation. That's what I have been doing in last three years," she added. "SOEs are being managed in professional and transparent way."
In the leaked letter, Indrawati said "PLN's principal repayments and loan interest are projected to increase in the next few years" and that "the government's policy to eliminate increases in electricity tariffs could potentially increase the risk of default."
In response, Soemarno said the government has calculated that it can save 300 trillion rupiah ($22.2 billion) a year from scrapping gasoline subsidies at the start of 2015, and that 36 trillion rupiah has been injected into SOEs. The companies are raising additional funds through bank loans, bonds issuances and, most recently, asset securitization. She said three SOEs including PLN are now planning to sell "komodo bonds" or rupiah-denominated bonds issued outside Indonesia, for the first time.
Since taking office in October 2014, Widodo has pledged to fix Indonesia's lack of infrastructure by building projects worth some 5,000 trillion rupiah during his five-year term. Soemarno said the government's flagship program of building 35,000 megawatts of electrical capacity is necessary so that "Indonesia can have [economic] growth of 6-7% for the next 10 years." She added that 26,000 megawatts worth of power plant projects are offered to independent power producers, and that much of the remaining projects that PLN is developing on its own is in remote areas where investors are less interested.
Soemarno said all of the 26,000 megawatt projects can be signed with IPPs by the end of this year. Still, some observers say the government's efforts to eliminate red tape have been limited.
"There's not just too many regulations, sometimes I find regulation from one ministry that directly contradicts another ministry," said Julian Smith, infrastructure finance adviser at PwC Indonesia. "A lot needs to be done to create a conducive environment for private sector investment."
Erwida Maulia in Jakarta contributed to this story