The government reiterated the importance of a holding of SOEs in the mining sector. A Synergy Coordination Team for the SOEs has now been established. What would the holding of mining SOEs be like?
End of January 2016, Directors of State-Owned Enterprises (SOEs) in the mining sector were seen gathering at the office of PT. Timah Tbk., in Jakarta. Among those present were President Director of PT. Timah Tbk., Sukrisno; President Director of PT. Aneka Tambang Tedy Badrujaman; President Director of PT. Bukit Asam, Milawarma; and President Director of PT. Indonesia Asahan Alumina (Inalum), Winardi Sunoto. Also present were Deputy Minister of SOEs for Mining, Strategic Industry and Media, Fajar Harry Sampurno, as well as President Director of Bank Mandiri, Budi Gunadi Sadikin.
Together, they formed an Executive Committee for Synergy of SOEs. The meeting that day would be the first of such for this team. Its main agenda was to form a working group to formulate the synergy between these mining giants. It also included the plan to establish a holding of the SOEs in the mining sector.
There would be at least five working groups to cover information technology, logistics and procurement, HRD, investment potentials, geological exploration, mining commodities management, and health facilities. It was also possible to then set up other working groups for other areas.
Earlier, it was questioned why the government did not directly establish a state-owned holding of SOEs in the mining sector. It turned out that the government had learned from past experience, when establishment of a holding of SOEs often created a turmoil. The establishment of a holding of state-owned cement producers had previously led to protests and demonstrations. Therefore, in the mining sector, the government planned to firstly encourage synergy (between the SOEs). Once the synergy is in place, the establishment of the holding would be easier.
“We have learned why thus far the formation of state-owned holdings always ends up in failures and turmoils. This time we invited the directors of major state-owned mining enterprises since the beginning. They would participate in formulating the form of the holding,” said Mr. Fajar Harry Sampurno, who previously served as president of state-owned explosives manufacturer, PT. Dahana.
A Coordinating Team for Synergy of SOEs was established on 8 January 2016. On the same date, the partnership between PT. Antam and PT. Bukit Asam for ferronickel project in East Halmahera was also signed. The partnership between PT. Timah and PT. Inalum was also reaffirmed.
The coordinating team would define the format of synergy of state-owned mining enterprises, which would culminate in the formation of a holding of SOEs in the mining industry. The team would consist of a steering committee, executive committee, and the committee secretariat. The managing directors of the SOEs would be positioned in the executive committee to be chaired by Fajar Harry Sampurno, Deputy Minister for SOEs in charge of mining sector. The vice chairman would be Mr. Budi Gunadi Sadikin, Managing Director of PT. Bank Mandiri.
“We could foresee from here, what in the future it would be like. We do not give money, but if the SOEs need funding to develop the business, they can ask for feedback from the bank,” explained Mr. Sampurno.
With the past experience and a better planning, at the end of this year the holding of SOEs in the mining industry could be established, even though it was initially planned to occur in approximately three years. The President Directors of the SOEs and PT. Inalum were however confident that they could form the holding within this year. “When it is about synergy, in fact it is now already in place,” said President Director of PT. Antam, Teddy Badrujaman.
A similar note was stated by the President Director of PTBA, Milawarma. Ho noted that when there were only three SOEs in the mining sector, at Ministerial level there was already an agreement to form a holding company. “It was uttered to the Ministry of Finance. However until now there is no follow-up,” said Mr. Milawarwa, who was also actively involved in the establishment of the then holding company of SOEs in the mining sector. Back then, he was the corporate secretary of PTBA.
The talk on the establishment of a parent company for the SOEs, including those in the mining industry, had long been there even since the era of Tanri Abeng who served as Minister of SOEs in the period of 1998-1999. There was the intention to boost added value for the SOEs. Seven world-renowned consulting agencies were involved. The scenario however did not go as planned. It was said that it happened due to the enormous political interference.
Following the changes in the governments, finally in 2005, a parent company for state-owned cement manufacturers was established. PT. Semen Gresik acted as parent company, who however at the same time still acted as a fertilizer manufacturing company. This turned out to end in a failure, since as a parent company, PT. Semen Gresik had to also operate as a subsidiary company.
The government also once designated PT. Pupuk Sriwijaya, a Palembang-based state-owned fertilizer manufacturer, as a parent company for SOEs in the fertilizer industry. However, at the same time the company remained doing business. It had to play two roles, on the one hand as an operational parent company, on the other hand became a distribution center. In the end, there appeared the assumption that there was a conflict of interest which had allowed PT. Pupuk Sriwijaya to regulate the market.
Through Master Plan 2014-2019, the Ministry of SOEs would again encourage the establishment of parent companies for SOEs. With the large number of SOEs existing, sometimes there is overlapping in the operations. One SOE is forced to work on the same job or even more. Through the establishment of a holding company, the capacity of the companies would be even greater. It would become more sturdy, but also remain agile in running the operations.
In the plan to further develop the state-owned enterprises, the government has chosen to establish holding companies for the optimization of management. A single directive for the enterprises would facilitate activities which are mutually supportive in terms of human resources, distribution, information technology and so on. The parent companies are expected to provide their subsidiaries with the opportunity to become freer to move and expand.
So far, such parent companies are recorded to have been developing successfully, such as the financial-based, strategic-based and operational-based holding companies.
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At present, one mining company is more focused on the downstream industry, namely PT. Indonesia Asahan Alumina (Inalum). Only a year back, the company’s ownership and management were returned to Indonesia as cooperation with previous Japanese owner was not continued.
Under the plan, as many as four state-owned companies in the mining sector would needs to be synergized. However, the shape of the synergy was still unthinkable. SOE Minister Rini Soemarno stated, ”With regard to the holding company, the scheme is still being studied thoroughly. Through the synergy, we expect these SOEs to have financial independence, meaning that for expansion they would not depend or interfere with the state budget. This would be the homework of the committee to determine the shape of synergy which was right for the state mining companies”.
The synergy could be a solution for the mining sector at the time when commodity prices are weakening. “In the current condition, what can be done are downstreaming and consolidation. We begin now with establishing the synergy among four state-owned mining companies,” said Aloysiius Kiik Ro, Deputy for Restructurization and Business Development of the ESDM Ministry.
Former secretary of the Ministry of SOEs Muhammad Said Didu also pushed for the establishment of a holding company for the state-owned mining companies. “We should just establish the SOEs immediately,” he said.
He was of the opinion that among the acceleration of this progress would be to designate PT. Indonesia Asahan Aluminium (Inalum) to become the holding company for mining SOEs. “Previously there were only three companies, namely Antam, PTBA and Timah. Now there is Inalum who is engaged in the downstream sector. If you want to be quick, just push INALUM to become a parent company, then set up subsidiary companies to assist Tera in managing the downstream businesses,” explained Mr. Said Didu.
According to him, Inalum who processes alumina into aluminum is 100% state-owned. While other mining companies are mostly only partially state-owned. “Therefore there will be subsidiaries to specifically work on the mining sector downstream business. Moreover, the government would now push the downstreaming measures in the mining sector,” he added.
He argued that if this option is selected, it would not take long to establish the parent company for the SOEs in mining sector. “Three to four months, and we will be able to establish one,” he said.
Another scheme, would be to form an entity or a brand new company, to become the parent company. It would however take a long time as the new company would have to be made into a pure parent company, with the government taking care of its capitals.
Mr. Milawarma explained that PTBA and the three other mining companies have been waiting for the best study to establish a parent company for mining SOEs. “At least this semester, in the first quarter we could have an existing picture of the shape,” said Milawarna.
Synergy and consolidation are also seen to help strengthen the SOEs in the mining sector in the face of global competition. “The size is magnified. In terms of consolidation and investment, it would be suitable for global competition,” added Mr. Milawarma.
However, due to relatively short time available, he preferred to choose the option which is most cultivated, modest, but still with visible aspect of a match. “We will see which one is most suitable. We want to find it simple and not complicated. The team is currently continuing the reviews,” he said.
In the establishment of holding companies for the SOEs, policy consistency would be very important. Considering the legal basis underlying the SOEs during the master plan has been limited to ministerial regulations only. This would make it easier to overhaul, especially due to the change of ministers. In fact, the Ministry of SOEs is among the ministries which is most frequently changing Ministers. Until now there has been no Minister who could last more than three years.
Aside of involving legal aspects, the restructuring will also bring changes in the staffing system. Those changes occurred from employment status, remuneration systems, up to the corporate culture. The formation of the holding company will also affect taxes imposed on these enterprises. Therefore, this has to be considered even far before restructuring takes place.
