SOEs open to private sector, ministry says

State budget only meets 41.3% of required capital for infrastructure SOEs show more willingness to partner with private entities on oil, gas, transportation

Complaints that state-owned enterprises (SOEs) dominate in a wide range of projects are commonly heard among business players nowadays.

The so-called pervasive presence of these firms is especially true in the infrastructure sector, which may need Rp 4.7 quadrillion (US$347.8 billion) by the end of 2019.

However, speaking at an infrastructure forum on Thursday, State-Owned Enterprises Minister Rini Soemarno effectively rebuked such a concern, claiming that private firms found it hard to participate in infrastructure projects, including on Java, the country’s most developed island, because of the risks it entails.

Toll road projects on Java, for instance, are often hampered by disputes in the land acquisition process.

“What happens on Java and in other places is that many of these [private] companies have the license already secured. However, they do not construct it [the infrastructure] because the license says that the government must guarantee that the land is clear,” said Rini in the forum jointly hosted by the ministry, the Association of State-Owned Banks (Himbara) and The Jakarta Post.

In the end, the government ends up re-buying the license and building the toll roads by itself before it can hand over the infrastructure to private firms, she said.

“For example, our toll road in Bakauheni [in Lampung] was constructed by PT Hutama Karya, which was 100 percent owned by the government,” she said.

President Joko “Jokowi” Widodo faces the hard reality that the state budget can only fund Rp 1.94 quadrillion, 41.3 percent of the required amount. SOEs are expected to contribute 22 percent, leaving the remaining 36.7 percent to private investors.

The ministry’s energy, logistics, estates and tourism deputy, Edwin Hidayat Abdullah, echoed Rini’s statement, saying that the state firms, contrary to perception, never intended to crowd the development of infrastructure projects in the country.

“I would say it is the other way around. Actually, SOEs prepare [...] for the private sector to invest, because once we build the infrastructure, we can form partnerships and sell to investors and also use the infrastructure to grow the industry,” Edwin said on the same occasion, referring to toll roads.

Despite the claims made by officials, both foreign and domestic investors hold a different perspective.

The head of the infrastructure working group at the European Business Chamber of Commerce in Indonesia, Scott Younger, said there was more private sector involvement in infrastructure projects in 2010 than in the past few years.

“Some foreign private sector companies left [...]. They didn’t see a future. They saw everything go to state-owned enterprises,” he told the Post.

Younger said progress in forming public-private partnerships (PPP) in infrastructure projects was slow and he attributed the bottleneck to the ministry’s approach.

“There’s still an old mindset that we haven’t moved off to say, ‘I want the private sector. How do I get them?’” he said.

Nevertheless, in sectors other than infrastructure, such as oil and gas and transportation, SOEs have shown more willingness to cooperate with private partners.

The finance director of stateowned energy firm Pertamina, Arief Budiman, said it would form a joint venture or list its subsidiaries if the opportunity arose. “This is very common in other companies and this is something that we have explored,” he said.

“Historically, the funding of Pertamina’s development has come from bonds, equities or lending and so on and so forth. But now, it would be very difficult for us to sustain that going forward, especially if we were to fulfill the demand from the government.”

Pertamina has several ongoing partnerships with foreign investors, such with Arab Saudi’s Aramco and Russia’s Rosneft, to develop oil refineries.

Meanwhile, state-owned seaport operator PT Angkasa Pura II is intensively seeking private partners to support its target to double the annual capacity of Kualanamu Airport in North Sumatra from 10 million passengers at present to up to 20 million passengers in the next five years.

“We have been on non-deal roadshows to countries in Europe, Asia and the Middle East to offer the opportunity,” said president director Muhammad Awaluddin.