Toto Pranoto: A Clear Picture of SOEs after Covid-19, Restructurization is Inevitable
Monday, 22/6/2020 – Bisnis Indonesia daily published an article written by Toto Pranoto, a lecturer at the Deparment of Management, FEB UI, entitled A Clear Picture of SOEs after Covid-19, Restructurization is Inevitable. Below is the article.
The Covid-19 pandemic that broke out in early 2020 has dealt a severe blow to the economies of nearly all countries in the world. State-owned enterprises should put their houses in order through downsizing and position mapping to be able to rise from the impact of the pressure from the pandemic.
The Covid-19 pandemic that broke out in early 2020 has destroyed social and economic lives in nearly all countries in the world. Indonesia is still imposing tight measures to deal with Covid-19. Large-scale social restrictions (PSBB) are still being implemented in nearly all regions, causing a sharp decline in economic activity. Negative impacts on the economy, such as business closures, bankruptcy, and layoffs have already occurred. Covid-19 not only hit large-scale businesses, but also small and medium-sized businesses.
The government offered stimulus through the national economic recovery (PEN) program, stipulated in Government Regulation (PP) No. 23/2020. Under the program, the government allocated Rp152.5 trillion for SOEs for payments of subsidies, compensation, loan bailouts, and additional capital. What was the reason behind the decision to disburse funds for SOEs? Most of the funds, worth nearly Rp95 trillion, were allocated for PT Pertamina (Persero) and PT PLN (Persero) for the payment of compensation and subsidies. This is also aimed at accelerating payments of the difference in the market price and the regulated price mandated by the government. The funds are definitely very helpful for the two state-owned companies amid pressure on cash flow. Pertamina, for example, is facing a sharp decline in world oil prices, while nearly 75% of the business is in the upstream sector. Thus, accelerating the payment of compensation is very helpful to strengthen working capital and payment of overdue debt.
SOEs in the public transport sector such as PT Kereta Api Indonesia (Persero) and PT Garuda Indonesia (Persero) Tbk. have also received working capital injection. This is because the PSBB have forced the two companies to cease operations for quite a long periode of time, thus the need for new working capital.
Garuda is somewhat controversial because the state-owned company has had a poor performance in the last few years even before the pandemic. The bailout funds for PT Krakatau Steel (Persero) Tbk. and the holding company of PTPN (PT Perkebunan Nusantara) have also come under the spotlight.
However, in principle, the working capital injections are aimed at keeping the companies afloat and are not intended to help them settle their debt payment obligations. The bailout funds are not free because the government only provides guarantees and the SOEs must seek access to funding sources.
Apart from funding from the government’s economic stimulus package, several SOEs are also actively seeking foreign loans through global bond issuance. The motives vary, from capital strengthening to refinancing, as well as to finance capital expenditure and investment, with a total loan value of around US$3.6 billion or the equivalent of Rp54 trillion until April 2020.
Meanwhile, the total accumulated foreign debt of SOEs in July 2019, according to a Moody’s report, had reached US$52.8 billion. It is necessary to pay close attention to SOE debts to ensure their effective use so as not to cause concerns and uncertainty. There should be an assessment of the use of the PEN scheme for SOEs to measure its effectiveness. If the SOEs that received government assistance scheme fail to improve their performance, the boards of directors should be reviewed.
The implementation of the concept of business judgment rules also needs to be clearly understood by all parties so that there is no doubt that the boards of directors will carry out the planned corporate actions.
BUMN and the New Normal
Currently, Indonesia has around 100 SOEs (fewer than before as some have become members of holding companies) in a condition of Pareto optimality. A 2019 report shows that SOEs generated Rp189 trillion of profit, with 73% of the total contributed by 15 SOEs. This is a cause for concern because it indicates low productivity, efficiency, and the ability to generate optimal profits.
The Covid-19 crisis can serve as a momentum to improve the structural positioning of SOEs. In line with the government’s objectives of increasing food security, energy, health and strategic industries, SOEs in these essential sectors should be maintained. In addition, it is also necessary to maintain SOEs that are engaged in services that affect the lives of many people as well as SOEs that are able to compete in a healthy manner. Thus, the positioning matrix of SOEs is based on strategic needs and competitiveness as well as internal health. SOEs that are classified as not strategic and unhealthy should be liquidated. With this new positioning, in the future Indonesia will have fewer but strong and healthy SOEs that can support national resilience. With the issuance of Presidential Decree (Keppres) No. 40/M 2020 Regarding the Establishment of the SOE Restructuring Team, it is hoped that the SOE liquidation program that has stalled since the era of Minister Rini Soemarno can be realized. Smooth communication with the legislature is important to ensure program success. SOEs should also construct their positioning maps as soon as possible to welcome the post-Covid-19 era and project their future positions (new normal) that will definitely change.
Future community relations that prioritize social distancing, massive digital communication, work from home (WFH) arrangement that may continue as a working flexible space (WFS), as well as other changes, should be anticipated. In the short term, by maintaining the business through services that are adjusted to the new normal. In the long term, SOEs should strive to maintain their sustainability by strengthening competitiveness in various sectors.
Based on the above scenario, it seems that some of the measures for efficiency, including downsizing the organization and personnel, are inevitable. That is the future portrait of Indonesian SOEs after Covid-19. (hjtp)
Source: Bisnis Indonesia
(lem)