Wednesday, May 29, 2024

SOEs’ subsidiaries continued to be IPOed, privatized amidst controversy

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Gusty da Costa





Several Indonesian state-owned enterprises (SEO) will go public in the next few years, according to a senior official. These SEOs include Inalum Operating, a subsidiary of state-owned mining company MIND ID, PT Pertamina Bina Medika (Pertamedika IHC), Pertamina Geothermal Energy, and several subsidiaries of Indonesia’s state-run telecommunications company PT Telkom.

Niko Chandra, MIND ID Head of Institutional Relations, has announced that the mining holding company plans to launch an initial public offering (IPO) on behalf of Inalum Operating. “Inalum Operating will be responsible for the IPO plan instead of MIND ID,” he informed Indonesia Business Post on June 21, 2022.

Before the IPO, MIND ID intends to separate Inalum Operating from the holding company. Inalum Operating will resume its role as an entire operation company, while Mind ID will become a separate legal entity as a strategic holding company.

“In essence, the process is ongoing. The reorganization represents the final form of MIND ID, which will be a fully strategic [mining] holding company. Meanwhile, Inalum Operating intends to focus on the downstream activities and become a publicly-traded company,” he said.

Some Pertamina subsidiaries will also become public soon, says Arie Gumilar, chairman of Pertamina Employee Union (FSPPB). The subsidiaries are namely Pertamina Geothermal Energy, Pertamina Hulu Energy, Pertamina International Shipping, and Patra Niaga. Pertamedika, Pertamina’s subsidiary in the healthcare sector, is also included.

Privatization Controversy

Marwan Batubara, Executive Director at Indonesia Resource Study (IRESS), stated that the government’s claim not to privatize Indonesia’s state-owned enterprises, such as Pertamina and PLN, was untrue. In reality, the companies are divided into smaller units as sub-holdings and subsidiaries and then sold on the capital market through an IPO. “Moreover, one of the profitable companies would be selected and traded,” he added.

In his view, a foreign investor will be interested in investing in and obtaining shares in profitable Indonesian state-owned companies. Apart from the interests of foreign investors, the state-owned companies are also in the interest of government officials.

Gumilar also added that the privatization of Pertamina began on June 12, 2020, when the ministry of state-owned enterprises issued a decree to unbundling Pertamina’s upstream-downstream integrated business into holdings and sub-holdings. Pertamina has evolved into a strategic holding under the leadership of six directors. “In contrast, the core business of Pertamina, which became the supply chain, was unbundled,” he said.

Gumilar said that by establishing the sub-holding of Pertamina and other state-owned enterprises, followed by a subsequent IPO is part of the government’s strategy to privatize state-owned enterprises. The IPOs of Pertamina’s subsidiaries will result in the privatization of those companies.

“According to our understanding, private companies want to maximize profits for investors, not consumers. We are concerned that investors will receive all profits, instead of [fulfilling their obligations to serve] Indonesians,” he stated.

According to Surya Darma, a former Pertamina employee, creating Pertamina subsidiaries are a means for the government to avoid the ban on privatizing state-owned enterprises. Following article 77, point c and point d, of the State-Owned Enterprises Law No. 19/2003, state-owned enterprises serving public service obligations and working in the natural resource sector are prohibited from being privatized.

“Therefore, IPOs of state-owned enterprises cannot be conducted. As a result, Pertamina established subsidiaries to dodge this problem. According to the law, subsidiaries of state-owned enterprises are not state-owned enterprises. Hence, there is no problem with the IPO of Pertamina subsidiaries,” he explained.

Reaction from the union leaders

PLN and Pertamina workers’ union leaders have strongly rejected the restructuring of state-owned enterprises and the IPO of its subsidiaries. The union leaders urged President Joko Widodo to annul the plan to establish a holding and sub-holding of Pertamina and PLN, as well as the IPO of its subsidiaries. Gumilar believed that the state should manage the nation’s vital and strategic assets and remain 100% state-owned. The holdings from upstream to downstream must be managed under state control as stipulated in the 1945 Constitution Article 33 clauses 2 and 3.

A member of the Parliament, Inas Nasrullah Zubir of the Hanura Party, argued that one of the goals of the IPO was to secure additional capital from the society. Thus, companies do not need bank loans to support their operational activities and investments. Zubir argued since a subsidiary of a state-owned company is not considered a state-owned enterprise but merely a private company, it does not require to obtain parliament’s approval for an IPO.

State-owned companies should only discuss their IPO internally within their parent companies, according to Aloysius Kiik Ro, Deputy CEO of Hutama Karya who is formerly deputy minister of the State-Owned Enterprises Ministry.

“For example, this year, there are five initial public offerings. If all IPOs are launched simultaneously or in close succession, the market will not be able to absorb them. Thus, the state-owned enterprise minister is responsible for ensuring that the share price is not excessively low or prohibitive,” he stated.

Gusty da Costa






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