The State-Owned Enterprises (SOE) Ministry plans to impose strict supervision on state enterprise subsidiaries to prevent them from being exploited for illicit purposes. “We are trying to thoroughly supervise state enterprises’ subsidiaries, both direct and indirect subsidiaries,” said SOE Minister Rini Soemarno.
Some state enterprises have run subsidiaries that were not related to their core businesses —opening possibilities for illicit transactions, she said over the weekend. Rini went on to say that she was reviewing the possibility of launching a policy or regulation that could effectively manage those subsidiaries and prevent state enterprises from running businesses unrelated to their core businesses.
There are around 700 subsidiaries of state enterprises that operate in various lines of business, ranging from hospitals to mineral water, according to the ministry’s data. State-controlled steel maker PT Krakatau Steel, for example, has a subsidiary that produces mineral water. A number of SOEs also operate hospitals while their core businesses are not related to healthcare or the pharmaceutical industry.
Rini hinted that she would probably shut down state enterprise subsidiaries whose operations have drifted away from their parent companies’ main businesses. “We are still thinking about what would be the best strategy to apply, be it to merge [those subsidiaries] as one and put it under a state enterprise with a related core business, or simply shut them down,” she said.
SOE subsidiaries have so far been in a gray area, creating the potential for them to be used for illicit purposes.
In the past, state enterprises had the notorious reputation of being cash cows for political parties. Based on the law on SOEs, there is no clear definition yet about whether the state enterprise subsidiaries are included as state enterprises. Meanwhile, an SOE ministerial regulation stipulated that the subsidiaries are not counted as SOEs, thus giving no authority to the government to take control of them.
According to findings by the Supreme Audit Agency (BPK), 62 percent of SOE subsidiaries are potentially causing state losses. The agency has examined 45 subsidiaries and recorded 801 findings with 1,294 recommendations to be followed up.
“There are indications that the subsidiaries are used for illicit transactions for the benefit of certain parties,” said BPK member Achsanul Qosasi. He said that most illicit transactions were detected at the subsidiaries of multi-finance state enterprises. In regard to the findings, as well as to the subsidiaries’ status, the House of Representatives is about to revise the law on SOEs.
Achmad Hafisz Tohir, the chairman of House commission VI overseeing industry and SOEs, said that the commission would propose that SOE subsidiaries be considered SOEs. “With the revision, the subsidiaries will need permits from the House for a number of actions, such as for initial public offerings [IPO],” he told The Jakarta Post.
Rini argued that she basically agreed with the commission’s standpoint on SOE subsidiaries. “For us, the subsidiaries can still be named SOEs, because most of their capital is usually sourced from their parent companies,” she said. The House itself has aimed at passing a total of 150 laws during the period of 2014 to 2019.
Source: The Jakarta Post, 18 February 2015