State-owned enterprise holding: 'Poison' for construction SOE 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.

Bisnis Indonesia - Holding Perusahaan negara: ‘Racun’ penyehatan BUMN karya

 18 July 2024

By Dionisio Damara

The establishment of construction state-owned enterprise (SOE) holdings is viewed as a strategy to bolster the state-owned business entities in this sector. However, it is also important to carefully consider the numerous potential consequences and risks before undertaking such an initiative.

The government is keen on setting up construction SOE holdings. The aim is to align the business direction of the state-owned companies in this sector with their respective specialisations and competencies.

The SOEs involved in this plan are PT Hutama Karya (Persero), PT Adhi Karya (Persero) Tbk, PT Waskita Karya (Persero) Tbk, PT PP (Persero) Tbk, PT Wijaya Karya (Persero) Tbk, PT Brantas Abipraya (Persero), and PT Nindya Karya (Persero).

In the plan designed by the government, there will be three holding companies out of the construction SOEs. Adhi Karya will be the holding company of Brantas and Nindya, Waskita will join Hutama Karya, and PTPP will be paired with Wijaya Karya.

The issue is that there are inherent risks that must not be overlooked if policyholders insist on this scenario of setting up these three holding companies. These risks encompass the potential redistribution of burdens from certain SOEs to other companies.

There are also risks regarding human resources. Moreover, not all of the state-owned companies have the capacity to raise funds or capital.

Unfortunately, related authorities seem to be ignoring these risks. It is true that streamlining construction SOEs will improve business efficiency. However, it is no reason to ignore these risks.

The process of establishing the holding of Hutama Karya and Waskita Karya is currently under due diligence that is currently focused on human resource management.

“From a resource perspective, the ongoing due diligence process, which is currently centred on human resource management, encompasses aspects such as human capital architecture, corporate values, and employee grading,” Hutama Karya Corporate Secretary Adjib Al Hakim said to Bisnis on Wednesday (17/7).

According to him, the integration process is anticipated to yield several positive outcomes. These include enhancements in organisational competencies, resource optimisation, knowledge expansion, and fostering innovations through the implementation of knowledge management.

He suggests that this approach is a strategic measure to bolster the organisation’s ability to compete in the infrastructure industry, both on a national and global scale.

PTPP President Director Novel Arsyad said that all construction SOEs were currently undergoing internal evaluations that are focused on their business and technical aspects.

However, until now, each company is still waiting for further directions from the government. “We are still waiting for directions from the SOE Ministry,” he stated.

An SOE observer from Datanesia Institute, Herry Gunawan, emphasised that streamlining construction SOEs was a pressing issue. The goal is to organise business processes to prevent overlap. This restructuring is expected to enable construction SOEs to efficiently execute government tasks and maintain a robust financial condition.

However, he suggests that the streamlining process should not result in a division into three separate entities. He warns that there is a risk of overburdening companies that are currently demonstrating positive financial performance.

“It could spread a virus to healthy companies. This is dangerous as companies with a great performance, such as Hutama Karya and PTPP, can be dragged down. It will be better if all construction SOEs are included in one holding, not three,” he explained.

Herry elaborated that a single company could serve as the holding entity for business units based on their operational regions. This is due to the ongoing need for infrastructure development.

Through a strategy of regionalisation, the central office of each subholding should be situated within its respective operational region. For instance, Hutama Karya could manage operations in regions like Sumatra and Kalimantan, while PTPP could oversee Sulawesi and other parts of eastern Indonesia.

This scenario will have a big impact. Not only in terms of workforce absorption, but also in terms of regional development to drive regional economy.

Therefore, Herry reckons the scenario of streamlining seven construction SOEs into three has a risk of a larger negative impact. Not only in terms of finance, but also in terms of the company’s reputation.

“Just imagine, Hutama Karya issues bonds. Its performance is currently positive. After Waskita Karya is consolidated, its bond risk will be higher. The scenario has to be reconsidered,” he stated.

Meanwhile, referring to the data from the SOE Ministry, only one of the three construction SOE clusters, specifically the one comprising Waskita and HK, is set to be established in the third quarter of 2024. The remaining clusters have not yet been assigned a target completion date.

SOE Minister Erick Thohir ensures that the establishment of construction SOE holdings would continue. He affirmed that the scenario for streamlining the seven construction companies would remain unchanged.

PUPR Ministry

Moreover, the SOE Minister has sent a letter to Public Works and Housing (PUPR) Minister Basuki Hadimuljono regarding the establishment of construction SOE holdings.

“I have sent a letter to Basuki, which has been reviewed by the Finance Minister [Sri Mulyani]. We are currently waiting for the process from the PUPR Ministry,” he said at the Parliamentary Complex in Senayan recently.

Regarding this matter, PUPR Ministry Spokesperson Endra S. Atmadjadja said that his institution has yet to receive a letter on the plan to establish construction SOE holdings.

He said that there was no discussion to facilitate the plan to establish construction SOE holdings.

“We have not received a letter. As far as I know, it has never been discussed between us and the SOEs,” Endra said.

He mentioned that the concept for streamlining the operations of the seven construction SOEs has not been received by the PUPR Ministry.

The lack of direct information flow from the SOE Ministry to the PUPR Ministry confirms that there is a communication issue at the governmental level.

Therefore, further studies are needed to execute the policy, as well as to prepare the best scenario not to hinder the performance of the construction SOEs.

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