SOE dividend target

For a non-economist like me, with so limited ability of econometrics, it is not easy to digest the ministry of state-owned enterprises plan to raise dividend payment in the 2006 Budget to Rp23.5 trillion (US$2.35 billion), a 113% increase from 2005 fiscal year.

I only understand the theory that the current year's dividend are the fruits of the past year's profit and that next year's dividend would only come from this year's profit.

Most of my business journalist friends praised Sugiharto (Minister for SOEs) and his staffs for stopping the privatization of SOEs and prefers to boost dividend instead.

An analyst helped me with little math of how the 113% dividend hike might be reached. Several options. First, raise the pay-out ratio. Second, boost profits. Surprisingly, MSOE said pay-out ratio would be kept at the same level (50%) for only four big SOEs (mainly Pertamina & Telkom), while other SOEs would be lowered to 35% or 40%.

So I decided to review the latest balance sheet of listed SOEs. Telkom, PGN, Aneka Tambang (Antam), Bukit Asam, and Timah booked higher income in the first 9 months of 2005, but none of them grew higher than 100%.

Two state-owned banks, especially BNI and Bank Mandiri, would book significantly lower net profit this year or worse they book net loss. MSOE could rely on BRI, but still with lower profit this year.

How about Pertamina?

This year, Pertamina paid dividend well below Rp3 trillion. The company's net profit target is Rp6.37 trillion. With pay-out ratio of 50%, Pertamina could pay up to Rp3.15 trillion next year.

So where all the dividend will come from?

"Actually, Pertamina's book could be easily cooked. If you need higher dividend from Pertamina, just make higher profit with bigger subsidy payments," said one analyst.

How come a company that always in difficulty to maintain enough cash for its operation could be relied heavily for The 2006 State Budget?

But most of my friends believe that 113% growth in dividend payments reflects good work from MSOE to keep ownership of SOEs, improvement in real operation performance, and prevent further privatization.

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