Jakarta Sets Plan to Reform City-Owned Firms

Jakarta Globe, Lenny Tristia Tambun,  Jan 22, 2015

A worker repairs a pipe in West Jakarta. City-owned water supplier PAM
Jaya loses up to 42 percent due to leaks. (Antara Photo/Fikri Adin)

Jakarta. The Jakarta government plans to liquidate and divest underperforming city-owned firms in a bid to shift spending to income-generating companies.

Jakarta Governor Basuki Tjahaja Purnama said of the capital’s 23 companies, only 10 are making a profit, and he vowed to fix those that, according to him, are riddled with corruption.

Analysts said Basuki’s reform of the city-owned firms should be copied by regions across the country. According to 2012 data from the Home Affairs Ministry, there are 1,007 firms in Indonesia that are owned by regional governments, with assets totaling almost Rp 400 trillion ($32 billion). But two-thirds of them are loss-making.

Jakarta Secretary Saefullah said the administration would no longer tolerate city-owned companies that continuously lose money, likening them to “an illness” inside the local government.

“We will liquidate firms with no viable business [plans],” he said.

Saefullah said the government would map out which underperforming firms are beyond saving and which require an overhaul.

“What is clear is the city firms should provide benefit to the city government and submit dividends to city coffers,” he said.

The Jakarta City Council recommended selling or dissolving printing company Cemani Toka and taxi operator Ratax, which have been operating at a loss for five and three years, respectively.

Saefullah confirmed that the two firms will be disposed of but it is not yet certain whether the government will sell them or dissolve them altogether.

The city administration is meanwhile also monitoring the performance of Food Station Tjipinang Jaya — a rice and basic staples distributor — and Dharma Jaya — which supplies beef across Jakarta.

“How can a company selling rice operate at a loss? The same with beef? Who doesn’t eat rice and beef? There is ample supply, and rising demand. This is weird,” the city secretary said.

Basuki said it was unclear which firms would be up for liquidation or divestment, adding that the city government was still studying them. But he promised that action was certain.

“We just don’t know how many yet,” he said.

Basuki also said the government has stopped providing underperforming firms with capital injections.

“These companies have been asking for capital increases year after year, but they are still operating at a loss. Well no more,” he said.

In 2012, the city administration divested four of its firms, generating a little more than Rp 14.9 billion, including property developer Jaya Nur Sukses, a testament to just how little these firms are worth.

The new plan comes after the Jakarta governor announced a massive overhaul of city-owned firms.

Basuki said the government planned to conduct an open recruitment to find senior executives for these firms. He added that there would be some companies “where all [executives] will get replaced.”

Basuki said the replacements for some posts have already been selected.

The governor added that he was looking for people who can turn underperforming companies around and get them to change the losses into profits.

“The most important thing is that they have integrity and that they are honest,” he said. “I’d rather pick an idiot [to run a firm] then a dishonest person. You can teach an idiot and guide him. But you’re screwed if you pick someone who is dishonest.”

Corruption

The governor said he was not discounting suspicions that the companies were losing money due to corruption.

Basuki said the Financial Transaction Reports and Analysis Center (PPATK), the country’s money-laundering authority, has detected several suspicious transactions “involving directors of city firms,” including those who are still active.

Basuki signed an agreement with the PPATK on Wednesday to immediately report to the city government if there were irregular transactions in the financing of city projects or city officials’ personal accounts.

The agreement, which also includes the monitoring of cash transactions by the city’s employees, significantly lowers the amount of cash Jakarta civil servants may carry from Rp 100 million to Rp 25 million.

“I appreciate the governor’s policy to use a minimum cash transaction, because any transaction involving a large amount of cash is very susceptible to graft and bribery. This is why PPATK urges the limitation of cash transactions,” PPATK chief Muhammad Yusuf said after the signing.

He said the PPATK was committed to helping the Jakarta government prevent money laundering.

Yusuf said the agency was ready to help investigate whether or not a public official has a clean track record when they apply for strategic official positions.

Basuki said the cooperation with the PPATK was aimed at limiting graft in the capital.

“With this non-cash transaction system it will be more difficult [to commit graft]. Generally the work system in Jakarta is getting better because most people want to work properly,” Basuki said.

However, the agreement between the city and the PPATK is not a law and civil servants found in breach of the regulation will only be subject to disciplinary action. It will not be a criminal offense for a city employee to exceed the Rp 25 million limit.

Mergers

Basuki said the Jakarta administration was also looking to merge firms, particularly those operating in the same field.

The city currently has seven companies in property development and five in the food trade and supply.

“It will be more efficient this way. Why do we even bother having so many firms operating in the same business? Take Sarana Jaya and Jakpro [Jakarta Propertindo] for example. They are similar. Why not merge them?” the governor said.

“I’m still figuring out the best solution. Should we merge them? Should we leave them operating individually? Or should we form a holding company?”

Among the executives the city is mulling to replace is Sri Widyanto Kaderi, director of water company Perusahaan Air Minum Jaya (PAM Jaya).

Basuki said Sri’s fate depends on her success in taking over the operation of private water supplier PAM Lyonnaise Jaya (Palyja).

“Once the acquisition is done, then we will evaluate, do we need to replace [Sri] or not,” he said.

Jakarta Secretary Saefullah said Basuki is gravely concerned about the performance of PAM Jaya, particularly due to the massive leakages occurring in the distribution of fresh water managed by the company.

“The amount of water lost is outrageous; up to 42 percent,” he said. “At 42 percent, it is no longer a leak, it is like a ship listing to one side and about to sink.”

The government has set a target for PAM Jaya to reduce the leakage to no more than 30 percent.

Job creation

Former Home Affairs Minister Gamawan Fauzi recently said Indonesia must quickly reform regional companies because they can create jobs for Indonesians, while also supporting development.

“These firms should be bigger and more profitable as they actually have advantages compared to privately run companies,” he said.

Meanwhile, Indonesia Corruption Watch (ICW) researcher Emerson Yuntho said most of the firms have been used as cash cows by the regional leaders and lawmakers.

“They lose money because they only serve the politicians. It’s time for the KPK [Corruption Eradication Commission] to step in and clean up these firms,” he said.

Further Coverage

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