Monday, January 16, 2017

Experts Criticize Revisions Made under Government Regulation 72/2016

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Marcell Sihombing, CR-21


A discussion on privatization of BUMN. Photo by: Edwin.


Towards the end of 2016, the government issued Government Regulation No. 72 of 2016 (Amendment) which amended Government Regulation No. 44 of 2005 on Procedures for the Investment and Administration of State Capital in State-Owned Enterprises and Limited-Liability Companies (Regulation 44/2005). In general, the Amendment focuses on the establishment of holding companies for state-owned enterprises (BUMN).
Another highlight of the Amendment relates to the ability for government to transfer the shares of one BUMN to another BUMN without first having to incorporate any transfer plan into the State Budget. Thus, the government may now transfer state capital invested in one BUMN to another BUMN without having to first secure any approval from the House of Representatives (House). However, administrative and legal discipline as regards the investment of state capital in BUMNs and limited-liability companies (perseroan terbatas – “PT”) is seen as vital, seeing as all state capital which is invested in BUMNS and PTs are state assets and thus their management must be able to be accounted for.
It is in this context that several experts have ventured their criticism over the contents of the Amendment. For example, Said Didu, the former Secretary to the Ministry of BUMNs has asserted that while the underlying reason for the Amendment is quite satisfactory and should prove beneficial in general, the potential legal issues that may arise in regard to the transfer of state assets to private parties could prove cause for concern.
During a discussion organized by the Populi Center in conjunction with Smart FM in Jakarta last Saturday, Mr. Didu stated that Law No. 19 of 2003 on State-Owned Enterprises (BUMN Law) basically stipulates that any transfer of stocks or cash to private parties is to be considered as an act of privatization. Indeed, Article 78 of the BUMN Law actually regulates that a privatization may be undertaken through the sale of stocks according to capital-market regulatory framework, or through direct sales to investors or any private company’s management personnel or employees. However, Article 24 (5) of Law No. 17 of 2003 on State Finance (State Finance Law) also requires that the privatization of any state corporation (perusahaan negara) must be approved by the House.
Supporting Mr. Didu’s point of view, Zulfan Lindan, a Lawmaker at Commission VI of the House, expressed his objection as regards the transfer of state assets to private companies without the obligation to first secure the approval of the House. Mr. Lindan believes that this policy has the potential to violate the constitution.
“No can do, that is the system. Bypassing this [House approval] stage would ultimately lead to  disarray,” asserted Mr. Lindan.
With this concern in mind, Mr. Lindan stated that the House was planning to clarify this matter over the course of the coming week.
On a different note, Danang Girindrawardana, the Head of Public Policy at the Employer’s Association of Indonesia (APINDO) and representing his fellow entrepreneurs has warmly welcomed the chance for business contribute more to the country’s development.
“We [businesses] would be happy to become part of BUMNs. Purchasing BUMN assets may become our form of contribution to the country’s strategic development, however we don’t want to violate any prevailing laws or regulations,” Mr. Girindrawardana asserted.
Nevertheless, Mr. Girindrawardana also pointed out that some questions still remained as regards the synchronization of the Amendment with the BUMN Law and the State Finance Law, and stated that Indonesia’s business community would remain on its guard in the meantime. Realizing that many BUMNs tangle with various legal issues, Mr. Girindrawardana explained that businesses basically don’t want to involve themselves with additional problems, not to mention the potential issues which could stem from the provisions regulated under the Amendment which address the transfer of assets. The concern is that private enterprise could become entangled in corruption allegations relating to the purchase of state assets.
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