SOEs to Increase Spending 20% in Bid to Create Jobs

The Jakarta Globe, Janeman Latul, February 17, 2009 

To offset the growing impact of the global financial crisis, the government said that state-owned enterprises will increase capital expenditure by over 20 percent compared with a year earlier in order to accelerate job creation, said Sofyan Djalil, state minister for state-owned enterprises, on Monday. 

He told the House Commission VI that out of the 135 SOEs, 63 have submitted their projected capex, totalling Rp 146.9 trillion ($12.4 billion). The rest are either undergoing a restructuring or don’t contribute significantly. 

“This capex policy is intended to increase the disbursement of funds to the real sector through strategic projects,” Sofyan said. 

Based on the document circulated during the hearing, the total figure represents an increase of 21.7 percent over the 2008 capex from state-owned companies, which previously amounted to Rp 120.6 billion. 

Ministry Secretary Muhammad Said Didu said the increased capex could help offset job losses during the first half of the year when impact from the crisis will most likely be the most severe. 

Didu said over 300,000 new jobs are expected to be created in 2009 alone, mostly in the transportation and telecommunication sectors. As far as contributions to the overall amount of capex, the electricity and gas sectors represents the biggest portion at Rp 60.1 trillion, with state oil and gas company, PT Pertamina, to spend the most among them at Rp 19.42 trillion, allocating 56.7 percent to upstream projects. 

Sofyan said that state-owned power firm, PT Perusahaan Listrik Negara, would set aside $1.93 billion in capital for investments that would help increase its power capacity by as much as 34,899 megawatts by 2018. 

Another major capex contributor is the country’s largest telecommunications company, PT Telekomunikasi Insonesia Tbk, which has earmarked around Rp 24 trillion in capex. 

State-owned steel producer, PT Krakatau Steel, the biggest contributor from the manufacturing sector, will allocate Rp 2.72 trillion this year, an increase of 320 percent from the Rp 647 billion it spent last year. The largest portion of its capex will be invested in new blast furnace technologies. 

The sources of the increased capex funding are unclear. Didu only said that some of the money would come from the SOEs’ internal cash flow, but most will be drawn from external sources. 

Purbaya Yudi Sadewa, a senior economist at Danareksa Research Institute, said SOEs must be very cautious in borrowing money now, given the current interest rates. He also said the government’s target to create 318,401 new jobs is optimistic. “It means that they contributed 0.9 percent for the country’s growth this year, it is huge.” 

Additionally, Sofyan has consistently denied that capex funds will come from initial public offerings due to the gloomy market, although several companies had received approval from the House of Representatives to do so.