Indonesia reveals next wave of privatization

The Indonesian Minister of State Owned Enterprises (SOEs) outlines plans for attracting a new wave of foreign investment and privatization receipts.

In a wide ranging speech to a select group of foreign investors in Hong Kong yesterday, Sugiharto, the Indonesian Minister for SOEs, revealed the many measures his government is considering in order to increase the level of foreign investment in the country from 20% to 30% of GDP, a necessary figure to get GDP growth up to 7%.

On the corporate front, Sugiharto said Indonesia Power and Jasa Marga would both be coming to the international capital markets this year. He noted that Indonesia Power was looking at either a bond issue or a pre-IPO convertible and is able to withstand more debt thanks to its $6 billion asset base and potential equity value of $5 billion.

He added that toll road operator Jasa Marga does not have the same leeway to finance 47 new projects because its balance sheet is already stretched. Therefore it might look to sell some of its existing assets in order to pay for new ones, said Sugiharto.

This strategy of getting the SOEs to sell existing assets to pay for new ones is also being applied to state electricity company PLN. Sugiharto revealed that Indonesia needs 17,000MW of new capacity built every year, but PLN does not have the resources to do so.

He therefore wants the company to consider selling off its generating capacity and focus on its distribution and transmission business. He said that PLN is already in conversation with companies from China, India, Malaysia and Singapore for the sale of a number of its generating assets.

Sugiharto also revealed that both Indonesia Power and Jasa Marga had appointed Morgan Stanley and Danareksa as financial advisors. The two securities houses were the organizers of the investment conference, attended by close to 60 investors, who heard presentations from both Indonesian companies as well as from Bank BRI and PT Telkom.

Overall Sugiharto revealed that his ministry was looking for more flexibility in the privatization process in 2005 compared to previous years, although the administration - in particular the finance ministry - is looking to maintain the Rp3.5 trillion ($3.6 billion) in privatization receipts in 2005, a similar figure to what was generated in 2004. Sugiharto said that there were nine or 10 SOEs where the government has a stake that did not make any economic sense and it would look to sell those stakes, but only if the timing and pricing are right.

In order to meet that Rp3.5 trillion target for the year end, there will have to be a marked increase in the pace of privatization in the second half of 2005 over the first half where only a couple of small bank trades have occurred. Nevertheless, Sugiharto commented that the government remained "committed to the commercialization, corporatization and privatization of Indonesian state owned enterprises".

On the FDI side, he noted that there was an increase of almost $1.5 billion in FDI from 2003 to 2004, showing that improvements have been made to one of the worst performing areas of the Indonesian economy. Separately he revealed that $4 billion of new mining investments had been signed in the last year. He also revealed that US companies he met last week told of almost $10 billion of planned investments in Indonesia in the next five years. This is in marked contrast to the almost non-existent investment in upstream oil and gas exporation and production that Indonesia has attracted in the last five years.