State-Owned Enterprise Governance and Privatization Program
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Completion Report Project Number: 32517 Loan Number: 1866 November 2008 Indonesia: State-Owned Enterprise Governance and Privatization Program CURRENCY EQUIVALENTS Currency Unit – rupiah (Rp) At Appraisal At Program Completion (28 February 2000) (7 October 2005) Rp1.00 = $0.000137 $0.000097 $1.00 = Rp7,305 Rp10,305 ABBREVIATIONS ADB – Asian Development Bank MOF – Ministry of Finance MSOE – Ministry of State-Owned Enterprises OECD – Organisation for Economic Co-operation and Development PPP – public-private partnership PSO – public service obligation SCI – statement of corporate intent SOE – state-owned enterprise TA – technical assistance NOTES (i) The fiscal year (FY) of the Government ends on 31 December. “FY” before a calendar year denotes the year in which the fiscal year ends. (ii) In this report, “$” refers to US dollars. Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General A. Thapan, Southeast Asia Department (SERD) Director J. Ahmed, Governance, Finance, and Trade Division, SERD Team leader K.-P. Kriegsmann, Senior Financial Sector Specialist, SERD CONTENTS Page BASIC DATA i I. PROGRAM DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Program Outputs 3 C. Program Costs and Disbursements 10 D. Program Schedule 10 E. Implementation Arrangements 10 F. Conditions and Covenants 11 G. Related Technical Assistance 11 H. Consultant Recruitment and Procurement 12 I. Performance of Consultants, Contractors, and Suppliers 12 J. Performance of the Borrower and the Executing Agency 12 K. Performance of the Asian Development Bank 12 III. EVALUATION OF PERFORMANCE 13 A. Relevance 13 B. Effectiveness in Achieving Outcome 13 C. Efficiency in Achieving Outcome and Outputs 14 D. Preliminary Assessment of Sustainability 14 E. Impact 14 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 15 A. Overall Assessment 15 B. Lessons 15 C. Recommendations 15 APPENDIXES 1. Program Framework 17 2. Compliance with First-Tranche Release Conditions 21 3. Financial Performance of State-Owned Enterprises in Indonesia 24 4. Privatization Indicators 25 5. Compliance with Second- and Third-Tranche Release Conditions 27 6. Compliance with Monitorable Actions under the Second and Third Tranches 31 7. Recommendations for Future Corporate Governance Reform 36 8. Compliance with Assurances 38 BASIC DATA A. Loan Identification 1. Country Indonesia 2. Loan Number 1866 3. Program Title State-Owned Enterprise Governance and Privatization Program 4. Borrower Republic of Indonesia 5. Executing Agency Ministry of Finance 6. Amount of Loan $400,000,000 7. Program Completion Report PCR: INO-1077 Number B. Loan Data 1. Appraisal – Date Started 10 February 2000 – Date Completed 28 February 2000 2. Loan Negotiations – Date Started 29 October 2001 – Date Completed 01 November 2001 3. Date of Board Approval 04 December 2001 4. Date of Loan Agreement 14 December 2001 5. Date of Loan Effectiveness – In Loan Agreement 14 March 2002 – Actual 18 December 2001 – Number of Extensions 0 6. Closing Date – In Loan Agreement 31 December 2004 – Actual 07 October 2005 – Number of Extensions 1 7. Terms of Loan – Interest Rate London interbank offered rate (LIBOR)–based – Maturity (number of years) 15 – Grace Period (number of years) 3 8. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval 21 December 2001 07 October 2005 45 months Effective Date Original Closing Date Time Interval 18 December 2001 31 December 2004 36 months b. Amount ($ million) Original Allocation Amount Disbursed Undisbursed Balance 400,000,000 400,000,000 0 ii C. Program Data Ratings Implementation Period Development Objectives Implementation Progress From December 2001 to September 2004 S S From October 2004 to March 2005 S PS D. Data on Asian Development Bank Missions No. of No. of Specialization of Name of Mission Date Persons Person-Days Membersa Reconnaissance 19 Mar–10 Apr 1999 3 45 a, b, c Fact Finding 10–28 May 1999 3 57 a, d, e Sr. Policy Consultation 1 16–21 Jul 1999 3 18 a, d, f Sr. Policy Consultation 2 10–15 Feb 2000 3 18 c, f, g Appraisal 10–28 Feb 2000 6 50 a, b, d, h, i, j Inception 11–14 Dec 2001 1 4 a Loan Review 1 21–26 Jan 2002 1 6 a Loan Review 2 18–19 Feb 2002 1 2 a Loan Review 3 13–17 Mar 2002 1 5 a Loan Review 4 15–20 Apr 2002 1 6 a Loan Review 5 30-May–1 Jun 2002 1 3 a Loan Review 6 11 Jul 2002 1 1 a Loan Review 7 26 Aug–7 Sep 2002 1 13 a Loan Review 8 21–24 Oct 2002 1 4 a Loan Review 9 17–20 Feb 2003 1 4 a Loan Review 10 21–27 May 2003 1 7 a Loan Review 11 24–26 Jul 2003 1 3 a Loan Review 12 3–6 Sep 2003 1 4 a Special Loan 4–6 Sep 2003 1 3 f Administration 1 Loan Review 13 12–15 Nov 2003 1 4 a Special Loan 28 May 2004 1 1 f Administration 2 Loan Review 14 13–15 Jun 2004 1 3 c Loan Review 15 14 Mar 2005 2 2 a, f Project Completion 28 Jul to 05 Aug 1 7 c Review 2008 a a = financial economist; b = social sector development specialist; c = senior financial sector specialist; d = senior programs officer; e = young professional; f = manager; g = lead financial sector specialist; h = senior counsel; i = senior environment specialist; j = senior social development specialist. I. PROGRAM DESCRIPTION 1. With the overall objective of improving resource allocation in the public sector and promoting private sector participation in economic activities that have traditionally been controlled by the state, the Asian Development Bank (ADB) approved the State-Owned Enterprise Governance and Privatization Program (the Program) for $400 million on 4 1 December 2001. ADB also approved two technical assistance (TA) grants—the first, for the 2 privatization and restructuring of state-owned enterprises (SOEs), and the second, for the commercialization of public service obligations (PSOs)3 to help the Ministry of State-Owned Enterprises (MSOE) implement the Program. 2. The Program was aimed at reforming the SOE sector by (i) subjecting SOEs to sound corporate governance practices, (ii) separating SOEs’ commercial activities from their PSOs to improve resource allocation, (iii) restructuring and privatizing SOEs to increase their profitability and revenue flows to the Government, (iv) establishing fair and transparent labor practices, and (v) strengthening and effectively enforcing procurement guidelines for SOEs.4 3. The Program comprised policy actions in these five areas supported by the $400 million loan, which was disbursed in three tranches. The first tranche of $150 million was released in December 2001 when the loan took effect and after the 26 conditions for its release were met (see Appendix 1). The second tranche ($150 million) was originally scheduled for disbursement in July 2003, and the third tranche ($100 million) in July 2004; both were released in October 2005, after the Government had substantively complied with the 7 tranche release conditions and 17 monitorable actions for the second tranche and the 7 tranche release conditions and 14 monitorable actions for the third tranche (see Appendix 2 for the tranche release conditions and Appendix 3 for the monitorable actions). The Program met its development objectives. With the help of the improvements it made in corporate governance and operational efficiency, the overall profitability of the SOE sector increased in 2000–2005. 4. The SOE reforms under the Program involved transferring ownership and management to the private sector. The Government took a strategic approach to implementing the Program. First, it identified more than 30 enterprises for restructuring and privatization. Second, it gave priority to divesting state shares in high-value enterprises to mobilize revenues that financed part of the fiscal costs associated with the economic restructuring in the post-crisis period. This move in turn facilitated fiscal consolidation and contributed to macroeconomic stability. Third, the Government leveraged the restructuring of state-owned banks and successfully divested shares in several large and medium-sized banks under the Program. 5. SOEs remain significant in the Indonesian economy. At the end of 2007, 139 SOEs (versus 152 at the end of 2005) and 21 enterprises with minority state shareholdings (compared with 17 at the end of 2005) together contributed about 40% to gross domestic product (GDP). This contribution is partly due to the rise in business activity over the last few years in key segments of the economy with SOE concentration, and also to the reclassification of the 1 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of Indonesia for the State-Owned Enterprise Governance and Privatization Program. Manila. 2 ADB. 2001. Technical Assistance to the Republic of Indonesia for the Privatization and Restructuring of State-Owned Enterprises. Manila (TA 3714-INO, for $2.6 million, approved on 5 September 2001). 3 ADB. 2001. Technical Assistance to the Republic of Indonesia for the Commercialization of Public Service Obligations. Manila (TA 3728-INO, for $1 million, approved on 25 September 2001). 4 The Program Framework can be found in Appendix 1. 2 national energy company, PT Pertamina, and the national basic food distributor and price control agency, Badan Urusan Logistik (BULOG), as SOEs. Further, the transfer of 13 large SOEs to private sector ownership through the capital markets means that SOEs now make up a sizable portion—about 35% of the value of all listed securities—of the capital markets. Indonesian equity market capitalization grew from $32.6 billion at the start of the Program to $72.3 billion at the end of 2004, and to $192.3 billion by the end of June 2008. II.