"To make SOEs more productive and more competitive as quickly as possible, the government is preparing to establish holding companies.”
Minister of SOE, Rini Soemarno Arief Kamaludin|KATADATA

The government is finalising its plan to establish a state-owned holding company for each SOE sector. This is expected to increase the value of investment in SOEs for national development.

President Joko “Jokowi” Widodo said that the government is working to accelerate development in several regions. The problem is, the government cannot rely on the State Budget to realise this program.

(Read: Government Agrees to Establish Six SOE Holding Companies)

The State Budget can only be used to develop marginal and disadvantaged regions. For regions with growing economies, Jokowi encourages businesses, including SOEs to fund development projects.

In 2016, the total value of investments made by SOEs was IDR 410.2 trillion. This includes investment in 62 strategic projects with a total cost of IDR 347 trillion. Jokowi hoped that with the establishment of SOE holding companies, the investment value will double in the next three years, reaching up to IDR 764 trillion.

In addition to strengthening financing, the establishment of the holding companies is also expected to make SOEs more competitive. “To make SOEs more productive and more competitive as quickly as possible, the government is preparing to establish holding companies,” Jokowi said during his state speech at the House of Representatives building on Tuesday (16/8).

(Read: Jokowi Wants Private Companies to Handle Infrastructure Projects)

Previously, Jokowi had agreed to a proposal from State-Owned Enterprises Minister Rini Soemarno to establish six SOE holding companies. The proposal was approved in limited cabinet meeting at the Presidential Office on Friday (12/8). The six sectors are mining, oil and gas, housing, toll roads, financial services, and food.

Rini emphasised that the state will continue to have full ownership of the new holding companies. “There has to be confirmation that the holding companies are 100 percent government-owned,” Rini said.

The stake of a holding company in any of its subsidiaries must be at least 51 percent, and must be included in A-series shares to guarantee government control of the companies.

Nevertheless, concerns continue to be raised about the plan. One of the concerns was raised by the Indonesian Economic and Industry Committee (KEIN), which said that the plan should be reviewed in more depth because it has the potential to create cartels.

KEIN member Aries Muftie said that this a possibility because the SOE holding companies are in breach of regulations issued by the Commission for the Supervision of Business Competition (KPPU). For example, Aries said that the plan to establish SOE holding companies will contradict KPPU regulations they will become cartels.

“The SOEs will not be allowed to bid in tenders,” Aries said after a media workshop in Bogor, on Sunday (14/8). (Read: Economic Committee Concerned SOE Holding Companies Could Create Cartels)