Construction SOEs face steeper climb to recovery
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
The Jakarta Post - Construction SOEs face steeper climb to recovery
21 February 2025
By Aditya Hadi
Indonesia's state-owned construction firms are expected to face even greater struggles to recover following a worsening performance last year. Meanwhile, experts have said that widespread budget cuts will likely exacerbate the struggle even further, makingconsolidation among these firms more urgent than ever.
Last year, PT Adhi Karya secured just Rp 20.01 trillion (US$1.23 billion) in new contracts, a 46.85 percent drop from 2023, while PT PP saw a 14.46 percent year-on-year (yoy) decline to Rp 27.09 trillion.
Debt-laden Waskita Karya recorded a 43.2 percent yoy drop in new contracts to Rp 9.6 trillion within the same period, and Wijaya Karya (WIKA) suffered a 31.36 percent yoy fall to Rp 29.24 trillion.
Earlier this month, local credit rating agency Pefindo downgraded WIKA's corporate rating from idBB- to idCCC after the company had failed to gain approval from bondholders for restructuring of debts.
"There is a high probability that WIKA will not be able to fully repay its maturing Bond and Sukuk [sharia securities] principal in a timely manner due to its weak liquidity condition," Pefindo stated, citing the firm's weak financial and liquidity profile from previous expansion and a volatile business environment.
The company then failed to make payments worth Rp 593.9 billion and Rp 412.9 billion, both due on Feb. 18, leading to the suspension of its stock from trading on the Indonesia Stock Exchange the following day.
Adityo Nugroho, senior analyst at local brokerage Mirae Asset Sekuritas opined that the recovery of construction state-owned enterprises (SOEs) would be more challenging this year after the government decided to implement a cut to save Rp 256.1 trillion worth of state budget.
The Public Works Ministry, which has typically been the main source of those SOEs' projects, saw their budget cut by 54 percent from Rp 110.95 trillion to Rp 50.48 trillion.
"This puts pressure on the SOEs minister to help recover their balance sheet, including pushing forward the consolidation plan. That is the key," Adityo said at a press briefing on Feb. 13.
Since 2023, the SOEs Ministry has floated a proposal to merge debt-ridden companies, namely WIKA and Waskita Karya, to healthier ones, such as Hutama Karya and PP. However, the plan has not yet materialized.
SOEs Minister Erick Thohir acknowledged the potential pressure on state-run construction firms due to budget cuts. He told lawmakers during a meeting with the House of Representatives Commission VI on Feb. 13 that he plans to "refocus" the sector's strategy in response to the cuts.
"Initially, we proposed merging seven companies into three. But we will reassess in the next three months," he said, noting that the process could accelerate as the bill to revise the SOEs Law has been passed.
"It is not impossible that we may end up merging them into just two or even one company," he added.
Abra Talattov, head of the Center of Food, Energy and Sustainable Development at the Institute for Development of Economics and Finance (Indef), agreed that the budget cuts could be a major blow to constructions SOEs, making consolidation even more critical.
"Consolidation could bring several benefits, such as reducing operational redundancies, improving capital-raising capabilities and strengthening audit processes to prevent misconduct," Abra told The Jakarta Post on Feb. 14.
However, the government must also anticipate trade-offs, including the politically sensitive issue of potential layoffs, he added.
Despite the potential benefits, investment company Avere Investama director Teguh Hidayat questioned whether the government has the political will to execute the consolidation.
"A merger would mean fewer executive and commissioner positions for political figures, so maybe the process is not that easy," he said to the Post on Feb. 14. "But the SOEs minister must be bold enough to push it through."
Focus shift to private projects
Despite the challenging outlook, Waskita Karya, PP and WIKA remain optimistic about securing more new contracts this year.
Rozi Sparta, corporate secretary of Adhi Karya, said the firm is targeting Rp 28 trillion in new contracts this year, a 40 percent increase from last year, by shifting focus from government projects to contracts with other SOEs and private companies.
"The company is committed to adapting to market conditions and seizing opportunities to maintain positive income growth," he said on Feb. 5, as quoted by Bisnis.com.
However, analysts have warned that winning private-sector contracts will not be easy, given ongoing economic uncertainty.
Teguh from Avere Investama also pointed out that private-sector investments in construction often align themselves with government initiatives. Under former president Joko "Jokowi" Widodo, for instance, private firms actively invested in toll roads alongside government projects.
"Private investors tend to focus on office buildings and apartments rather than large-scale infrastructure like toll roads, airports or bridges," he said.
"And they already have established private contractors, making it challenging for state-owned firms to penetrate that market."
