Indonesia: Widodo tightens grip on Indonesia’s state companies

  • Indonesian President Joko “Jokowi” Widodo is increasingly pushing state-run companies to accept populist demands and avoid rocking the boat ahead of his re-election bid in 2019, raising concerns that they could become bloated and less profitable.
  • Oil and gas powerhouse Pertamina, one of Indonesia’s biggest companies with sales of roughly USD43 billion, has become the poster child for this shift. On 29 Aug 18, the government promoted interim CEO and Widodo loyalist Nicke Widyawati to full-time chief.
  • Pertamina also takes over operations of the Rokan oil block in Sumatra when Chevron’s contract expires in 2021, a government decision likely driven by growing public pressure to nationalize Indonesia’s natural resources.
  • The sprawling business once was considered “a state within a state” and held the right to grant oil and gas concessions to other companies. But Pertamina’s wealth also became a breeding ground for corruption, making it a target for Widodo’s initial campaign for change.
  • Reforms appear to have taken a back seat since. Soetjipto’s successor, Elia Massa Manik, was dismissed in Apr 18 after publicly criticizing the administration for refusing to allow an increase in gasoline prices. The company posted a 19% drop in net profit in 2017.
  • The administration seems to have switched gears at other state-run companies as well, intervening even when it hurts their bottom line.
  • Examples of this include State utility Perusahaan Listrik Negara, which built a large-scale power plant in response to the government’s push for greater infrastructure investment. But demand for electricity rose less than expected, and the company’s net profit plunged 45% in 2017.
  • Widodo originally planned to streamline Indonesia’s roughly 120 state-run companies by business area and have them issue bonds on the market to help them compete better globally. But the president now seems focused on how these companies can benefit the Indonesian people. He also is pushing state-run businesses to retake control of the country’s natural resources from foreign companies, like Pertamina plans to do. Inalum also acquired a majority stake in an Indonesian copper mine from U.S.-based Freeport-McMoRan.

External Link: https://asia.nikkei.com/Business/Business-Trends/Widodo-tightens-grip-on-Indonesia-s-state-companies

30-Aug-2018


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