Wednesday, January 23, 2008

Just admit it

This week my team and I are being rotated to the BUMN [Badan Usaha Milik Negara or state-owned enterprise (SOE)] Research Center unit. Our main task during our rotation in the unit is to help prepare the BUMN monthly newsletter.

During my time doing my work - which I find quite boring because what I do is just collecting data & information on CEO's profile of several SOEs and turning it into a short article in English - I've been thinking about SOEs in Indonesia. Currently there are about 130 SOEs in Indonesia, and the majority never cease to have negative bottom line from year to year. Concerns on this have been raised since more than a decade ago by professionals and the government itself. Efforts such as downsizing the number of SOEs and having some of the SOEs sell their shares to the public have been executed.

So far the last effort is the most effective one. SOEs which have gone public are now among the top ten listed companies whose shares are the most liquid and actively transacted. These companies' losses have been able to remedy and now they almost never fail to make profits year in year out.

But of course, there are still many other SOEs which are helpless. SOEs such as PLN and Pertamina, for example, are notorious for their inefficiency and consistent net losses. The question is: Will and can these SOEs ever book profit?

Despite the basic problem such as corruption which has plagued SOEs and contributed to their high inefficiency, in my opinion some SOEs are inevitably cost centers. PLN, for instance, is expected to produce and or distribute electricity to households and manufacturers at affordable tariff because, if you remember our constitution article 33 verse 2, the state is supposed to protect and regulate the provision of goods and services which are related to the basic needs of the people of Indonesia. Now with the condition of soaring oil price and costly infrastructure procurement, there is no way for PLN to make a profitable company. Small income deducted by big big cost equals: Loss. Huge loss.

Take another SOE like PANN Multifinance. This SOE never misses being listed as one of the top five SOEs which suffer losses every year. If you look at the business of the company, you’ll see why it has such poor performance.

PANN is basically a financing company. Rather than financing motorcycle purchase like nowadays regular multi-finance companies do, PANN helps finance the purchasing of ships. As you know, ships are like properties: it takes some time before we can sell one. So it’s no surprise if we find the company’s revenue and cash flow fluctuate like roller coaster ride.

I can mention you a list of SOEs which are burdensome to exist but they just have to exist. For the sake of providing goods and service which a normal private company won’t do, I say these SOEs deserve not to be dissolved. Why don’t we just admit it that some SOEs are simply cost centers?


YESSE said...

Before we can jump to conclusion that some SOEs are indeed cost center, i'd say that we should take a deeper-look into their figures. Something must be not right for them to suffer such huge losses. Maybe their purchases are way too expensive, inefficiencies, or wrong way to sell their products. After all its our taxes money that they spend so lavishly yet manage so poorly. I'm not expecting them to create margin as well, at least they should operate at BEP level

metty said...

Yup, my posting surely does need further research into it. However, I believe some SOEs are meant to do "social works", meaning they go to the area where there's no private companies would go.