Bukaka profit jumps 40%

PT Bukaka Teknik Utama, an engineering company controlled by the family of Vice President Jusuf Kalla, reported operating profit of Rp109 billion in the first half 2009, jumped 40% from the same period last year. 

According to the company's unaudited financial report to Indonesia Stock Exchange (IDX), Bukaka reported contracts revenue of Rp404 billion in H1 2009, increased 8% from the same period last year. With lower operating expenses, the company managed to book operating profit of Rp109 billion. Combined with gain from foreign exchange translation of Rp73 billion, Bukaka then reported net profit of Rp175 billion, surged 92% from Rp91 billion in H1 2008.

But the company's balance sheet has yet to be cleaned, especially because the defaulted loans have not been restructured. The company had short-term liabilities of Rp1.57 trillion in June 2009, while its current asset was only Rp600 billion. Technically, this company is bankrupt.

Bukaka has to restructure Rp920 billion defaulted loans to a consortium of 24 banks and offshore financial institutions (Rp419 billion, due in 2001), a consortium of 16 banks (US$30 million, due in 1998), a consortium of four foreign banks (US$14 million), KreditBank NV, Belgium (US$5 million), and Deutsche Bank (US$3.6 million).

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Former military commander, new Pertamina chairman

Government appoints former military commander general (ret) Endriartono as the new president commissioner for the state-owned oil and gas company PT Pertamina replacing Martiono Hadianto. President SBY scored another victory over Vice President Jusuf Kalla? Besides Endriartono, another new member of Pertamina's board of commissioner is Irnanda Laksanawan, currently officer at the state-owned enterprises minister. Umar Said, Muhammad Abduh, and Maizar Rachman (former OPEC governor) are maintained as other members. No detail explanation available on why Martiono is replaced. Read full report on Endriartono & Irnanda's profiles.

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The politic of video-phone sex clip

Golkar Party had accepted Yahya Zaini's resignation as chairman of religious affairs at the party's central executive board less than a week after the video-phone sex clip (Yahya as the performer and singer Maria Eva) widely distributed and sparked controversy. VP Jusuf Kalla, who is also chairman of Golkar Party, has reportedly accepted that. "He want to tell Indonesian people that his Little Buddy is not so little," a friend said. What a coincidence! Maria's lawyer, Ruhut Sitompul, was a former Golkar Party's executive but recently jumped ship to SBY's Democrat Party.

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Lapindo disaster politics

VP Jusuf Kalla indirectly endorsed the idea of state bailout on Lapindo disaster costs. State Minister for National Development Planning Paskah Suzetta said the state budget 2007 could cover part of the costs. Ministry of Finance rejected the idea arguing the President Decree No.13/2006 clearly stated the costs incurred from the mudflow disaster should be the sole responsibility of Lapindo Brantas Inc. But East Java governor Imam Utomo generously lend a hand saying, after a meeting with President Yudhoyono, that the local administration budget could share the costs Lapindo can't take. See, when it comes to state or local administration budget, it's all about politics.

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President 2009 Hypothetical Election

My friend Tommy, a prominent political journalist, believes the presidential election in 2009 will be the race of four candidates: SBY, JK (Jusuf Kalla), AR (Amien Rais), and MS (Megawati). How about Wiranto & Sutiyoso who are establishing new political parties, inspired by SBY's Partai Demokrat in 2004?

"If a hypothetical election was held today, SBY would lost the battle. I don't think he has enough energy for 2009. He looks happy to have the chance to be the president and that's it. But if he runs, which I'm sure he will, SBY could still get enough votes to pass the first round," he concluded.
Wait a minute! Isn't SBY considered successful in eradicating corruption?
"On the surface, yes! But people at the grass root level won't buy that anymore. Besides, he must have created a lot more enemies in the last few years. They'll strike back at SBY. He also failed to impress Islamic groups. Look at his statement about Iraq," Tommy said.
But the the prosecution of some high-level officers have created psychological fears and it's good?
"So far, from PR point of view, it's partially true. But you can't be considered success when you stop at prosecutions and you only prosecute your foes or what popularly known as selective cutting."
How about SBY's Partai Demokrat?
"The party has been torn apart. At the central board, the split has been obvious. Even the party's founding member Sys NS proclaimed a new party. The party is bussy with local election projects," he added.
"It's quite clear now that JK will run for presidency. But he wouldn't pass the first round," Martin, another prominent journalist said.
"But JK is considered strong enough to grab most of the votes outside Java," I asked.
"Well, look at the result of direct gubernatorial elections outside Java. PDI-P won in North Sulawesi, Central Kalimantan, and two provinces in Papua. In that case, JK & Megawati could share outside Java," Abraham, a political observer answered.
Abraham also mentioned about two major win for PDI-P, North Sumatra & Lampung. In the later, PDI-P's Sjahroedin Pagaralam-Syamsurya Ryacudu (younger brother of former Army Chief of Staff Gen Ryamizard Ryacudu---Megawati's key ally) had just won almost three-year battle against Golkar's Thabrani.
"And if Megawati could get Akbar Tanjung as her running mate, they could easily take Sumatra. Tanjung is also acceptable for Moslem voters. Those who supported SBY in 2004 will easily move to support Akbar," Abraham added.
But why do you think that JK won't pass the first round?
"Because Golkar already splitted and Tanjung loyalists are working hard to block JK, especially because JK's recent statement that insulting Tanjung's camp. Look at Tanjung's statement on SBY's newly established team. He said it's the president's sole right to establish such team. The statement actually an attack to JK who opposed the team," Abraham said.
So, how do you explain Gamawan Fauzi's win in West Sumatra? Gamawan was promoted by PDI-P. Can we assume that Megawati could win West Sumatra while JK's wife is a native West Sumatra (from Tanah Datar regency) and SBY has been named Datuk with Irman Gusman (DPD member) as the promoter (in fact JK's son has also been named Datuk)?
"Well, West Sumatra is different game. Gamawan won not because of PDI-P, but his personality as clean figure. It's just a coincidence. If Amien run, he might still win there as shown in 2004," Abraham argued.
"But Tommy, don't you think that Amien Rais is already the past. He failed in the first round in 2004," I asked.
"Well, Amien is playing Evo Morales personality at the moment. I think he's quite smart to use the nationalism sentiment to attract 'nationalist' voters," Tommy argued.
"But do you think that voters would buy the radical nationalistic campaign?"
"I'm not saying Amien would win the election. But looking at his movement in the last few months, it's quite clear that he still has the ambition to run for 2009," Tommy said.
Martin, long-time observer of local politics, jump in the discussion. "We have to see the more interesting local elections in Banten and Jakarta. Then we could get better picture about voters in densely populated areas in Java," he said.
Who do you think will win in Banten?
"I think Atut from Golkar-PDI-P will win," Martin said.
And who do you thin will win Jakarta?
"I think if PDI-P endorse Agum Gumelar, he could win. But Fauzi Bowo is the strongest contender."
But how about PKS candidate Mr Adang Darajatun?
"He has money. But for God sake I don't understand why PKS endorse him? If PKS believes it has the largest supporters in the city, why don't promote Tifatul or Hidayat Nur Wahid?"
Well, you can't say Banten & Jakarta represent the whole Java because we have West Java, Central Java, and East Java with different voters character.
"I think SBY & Megawati could still get the bigger slice of voters in those most populous areas," Martin said.
Rahmon, an international politic analyst, entered the discussion. "You have to look at the possible turn around in US politics as well. You know from the history that US plays important role in Indonesia's leadership changes," he said.
So, in that case, US will lean to SBY?
"At the moment, yes. But if Democrat win the 2008 election, things will change accordingly," he said.
The discussion stopped because I had diarhea. We promised to continue the discussion next week!

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Gas: Export vs domestic pressures

President SBY should make an important decision early next week which may divide further the cabinet. He should decide whether to extend LNG export of 12 million tones/year to Japan or downsize it.

Japan is the largest LNG buyer which absorbs almost 68% of Indonesia's total LNG export. There are contracts to supply 12 million tones/year to Japan that expires 2010. The cabinet is clearly divided on this. Industry Minister Fahmi Idris echoed VP Jusuf Kalla asking for significant reduction in LNG export for the sake of domestic customers. Mr Idris even called a drastic cut of 50%.
Energy Minister Purnomo Yusgiantoro, as usual, is showing unclear position. One time he said that government will cut LNG export for the sake of domestic customers, but then he would say, we could still export LNG as long as we push the development of other gas fields in other areas.
Indonesian Chamber of Commerce & Trade had also urged government to ask more concessions from Japan should the LNG export maintained at the current level.
Pertamina president Ari Soemarno stated this week that based on existing proven reserves in East Kalimantan, Indonesia could only extend LNG export contract to Japan at 4 million t/y the most.

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People behind Free Hold

"They must be kidding with the name. I thought they should have shown at least sensitivity to public over the mudflow disaster," an analyst wrote to me commenting the announcement from PT Energi Mega Persada (EMP) Tbk to sell Lapindo Brantas Inc to Free Hold Group Ltd, a BVI company. Who are the people behind Free Hold?

Well, don't expect a straight answer. Even Bapepam (SEC) is just about to summon EMP management over the plan and hopes to get the answer which they might never get.
"You could pay to get the information from BVI. But I think they could only provide proxy names or law firms who represent the ultimate shareholders. That's the common practice for such vehicles," another analyst said.
Googling? Zero. Asking people at EMP, they would be tight-lipped. How about Bakrie family? The same. The National Team to Handle Lapindo Mud Flow (Timnas Penanggulangan Lumpur Lapindo)? Don't expect! Even though from my opinion organizations like that (plus Bapepam) must know who will be the new ultimate shareholders of Lapindo considering the social & economic responsibilities of the mudflow that already forced more than 10,000 people to leave their homes.
While Vice President Jusuf Kalla once declared that Bakrie Family had promised to take the responsibility, so far we don't know exactly whether the commitment is written or just oral commitment. Since we have so much at stake with the Lapindo issue, we need the written commitment.
I hope that Kalla will comment on the recent development of Lapindo divestment to non-Bakrie family as stated by EMP management.
Without clear legal relationship between Lapindo and Bakrie family (suppose that Free Hold will be confirmed as the new owner), I'm not sure if the nation could ask Bakrie family to stand up with their commitment unless it's stated.
That's probably why VP Jusuf Kalla didn't mention Bakrie family when he said on Friday that whoever own Lapindo, the company should take the responsibility.
To add confusion over the matter, Minarak Labuan Ltd (a company owned by Bakrie family) claimed that it will lend money to Lapindo.
"But I'm afraid President Decree No.13/2006 could secure Lapindo's interest," a respected journalist warned me yesterday.

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Golkar starts 2009 campaign for Kalla?

I saw some big-size posters of Vice President Jusuf Kalla in Jakarta major streets since last week in his capacity as chairman of Golkar Party. One of them is located near the Sultan Hotel (previously Hilton Hotel) owned by corruption suspect Pontjo Sutowo (brother-in-law of Aksa Mahmud, Kalla's brother-in-law).

Today, I saw one-full page of advertisement in Kompas newspaper filled with big-size photograph of Kalla. Well, Golkar may argue that all of these are related to the party's national leadership meeting held in Jakarta this week. But others may see them as the signs of Golkar's 2009 campaign.
Well, it's too premature to conclude that Golkar will eventually name Kalla as a president candidate for 2009. But the party has just reaffirmed its commitment to support SBY's leadership? Hm...I think the party was trying to be polite by declaring that, especially after the party leadership's open opposition to the team established by SBY.

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Holding vs merger of state-owned banks

Responding the Central Bank's Single Presence Policy (SPP), government has launched an initiative to establish a holding company for state-owned banks (Mandiri, BNI, BRI, BTN & BEI). But some prefer merger of these banks. Which one is better?

Legislator Drajad Wibowo (former commisssioner at BNI) told Koran Tempo today that merger would be better to create a stronger bank. His view is completely different with his stance few months ago when he agreed on a BNI-BTN merger plan but rejected a Mandiri-BNI merger arguing the latter would create an overlap functions.
State-owned enterprises minister Sugiharto said earlier that government is reviewing the plan to respond Central Bank's policy. Establish a holding bank, either vertical or horizontal structure, is among the options available besides the merger. Kompas quoted Sugiharto last week saying out of so many options available, the holding company is the option left for further review. The review would be to decide whether to pick one bank as the operating holding or establish a new non-operating holding.
So far, there is no clear guideline from government about its policies on state-owned banks. VP Jusuf Kalla prefers a merger of Mandiri-BNI because of their similar functions, but keep BRI and BTN as independent banks with speficic tasks (BRI for SMEs, and BTN for housing). Guess why?
Previously some politicians argued against the merger saying that would be politically too sensitive. But Drajad told Tempo that a merger would be more sensible politically. Drajad's colleague, Dr Aviliani, who is also member of board of commissioners at BRI, prefers holding than merger. I'm not sure whether her view represents the BRI board or not. Drajad & Aviliani were economists at INDEF (think tank).
After the fuss over SBY's newly established team, it's interesting to watch the competition between the two camps (SBY & JK) over the holding vs merger issue.
Early this year, government scrapped a BNI-BTN merger plan on strong opposition from legislators and the management/workers of BTN. So, I just can't imagine the scale of political opposition on the merger of 5 state-owned banks.
Merger is also considered a violation of Govt Regulation No. 28/1999 about the merger, consolidation, and acquisition of banks which stated the bank emerged of the merger should not have assets more than 20% of the total national bank assets. The merger of 5 state banks would create a bank with 38% of national bank assets, Kompas reported.

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Investment Forum: Here, There, and Everywhere

Yesterday, president SBY gave speech to prospective investors/creditors at Infrastructure Summit II, Jakarta Convention Center. One mile away, at Shangri-La Hotel, SBY gave another speech this morning, practically with the same messages (to lure investors in) to prospective investors attending Regional Investment Forum (RIF). Other cabinet members also deliver speeches in both events, with copy-paste here and there.

Indonesia Forum had just organized in Shanghai, China, with SBY as the keynote speaker and some ministers too. By the end of the week, in Makassar, South Sulawesi (hometown of VP Jusuf Kalla), The Bugis-Makassar Traders Network would convene, part two. I bet Kalla will be the key figure there. The first was organized by a company owned by member of the family. Good business for the conference organizers!
Results?
Well, we've recorded so many investment commitments. US$4.5 billion in Shanghai (even though no new commitment, reaffirming only), billions from Middle East, US, Europe state visits, another US$2.1 billion in the first day of The Summit II from US-Japan consortium, Texas Pacific Group committed to establish an Indonesian fund (US$100 million), and so on...But don't ask whether all these guys really put their money into the economy...we have to wait few more years!

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Off to China again, balancing act

President Susilo Bambang Yudhoyono (SBY) starts a five-day visit to China today, mainly to strengthen economic ties between the two countries, just weeks ahead of US president George Bush's visit to Jakarta and days after VP Jusuf Kalla visit US.

Last year, both the president and VP visited China. SBY also visited US last year. SBY will meet Chinese PM Hu Jintao, the fourth meeting between the two leaders. SBY will score the same amount of meetings with Bush next month. Balancing act, to take benefit from the competition between the superpowers, hopefully.
As reported today, the president is scheduled to witness the signing of cooperation agreements worth US$4.5 billion between Indonesia and Chinese companies in energy sector. No details available so far.
One thing, China energy giants such as CNOOC and Petrochina, have been agressively invested in Indonesia's oil and gas sector even though the scale of their operations are still insignificant compared to US giants such as Chevron or ExxonMobil.
I'm pretty sure, Bush will take with him these giants to Jakarta next month. Whatever, such competition, especially between US and China energy giants, should be good for the country.

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Telkom accomplish Bukaka SingTel acquisition for US$256 million

Giant telecommunication operator PT Telkom Tbk has accomplished the acquisition of assets and operation of PT Bukaka SingTel Indonesia (BSI) through reverse agreement mechanism at around US$256 million.

Arwin Rasyid, Telkom CEO, said yesterday that the acquisition has been completed. He didn't disclose the acquisition price. But Telkom finance director Rinaldy Firmansyah said BSI deserved to get fix investor revenue (FIR) of Rp55.6 billion per month from October 2006 to June 2007 plus Rp44.25 billion/month from July 2007 to December 2010 as compensation. It means Rp2.358 trillion or somewhere around US$256 million.
BSI was established in October 17, 1995 to build telecommunication infrastructure in eastern part of the country under a cooperation agreement with Telkom as the monopolist for the span of 15 years. Shareholder composition was PT Bukaka Telekomindo International/BTI (51.5%), SingTel (40%), and Transpac Capital Pte Ltd (8.5%). BTI is a wholly-owned subsidiary of Bukaka, a group of business controlled by VP Jusuf Kalla's family. Muhammad Abduh, VP's special staff, was once the chairman of BSI with Kalla brothers (Achmad & Suhaeli) as commissioners.
But in July 5, 2002, Green View Finance Offshore Ltd bought all shares Bukaka in BSI at undisclosed price. No information available about Green View Finance Offshore. Whoever, BSI clearly got the deal, with income of Rp44.25 per month in 51 months while Telkom will take care operation, maintenance, and development of the contract. BSI is reportedly invested US$300 million in the project. High return, right?

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No Nobel Peace Prize for SBY

It's Muhammad Yunus, not president Susilo Bambang Yudhoyono, who won the Nobel Peace Prize. As reported by AP, the Bangladeshi economist and his Grameen Bank won the Nobel for their pioneering use of tiny, seemingly insignificant loans — microcredit — to lift millions out of poverty.

Through Yunus's efforts and those of the bank he founded, poor people around the world, especially women, have been able to buy cows, a few chickens or the cell phone they desperately needed to get ahead. I initially thought Yunus deserved Nobel in economy. But fighting poverty through microcredit is considered an act to promote peace than an economic breakthrough. This is what some observers called major shift in the definition of peace.
I think SBY and many around the world praise Yunus's effort amid such criticism. It also a boost to Indonesia's effort to improve microcredit facility to the country's poor people.
The rationale could be like this. Peace in Aceh prevent more deaths from bloody war between Indonesian military & Free Aceh Movement (GAM). But history told us that lot more people died every day of famine & absolute poverty than wars. I'm not sure about the statistics in Indonesia. But I'm pretty sure of the rationale of poverty & peace, though most wars triggered by those who pursue for more wealths.
Finnish ex-President Martti Ahtisaari, who mediated a peace accord in Indonesia's Aceh province, and veteran peace broker Gareth Evans of Australia were among those tipped to win the Nobel Peace Prize on Friday.
Ethnic Uighur activist Rebiya Kadeer, who accuses Beijing of persecuting Uighur people in northwestern Xinjiang, and Indonesian President SBY were also among possible winners of what many see as the world's top accolade.
VP Jusuf Kalla expressed his prayers yesterday for SBY to win the prize. "None had nominated me," Kalla said lightly when asked his chance to win the Nobel considering his active role in Aceh peace deal.

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Workers union urge SBY to kick out Sugiharto

State-Ownes Enterprise Workers Union Federation (FSP-BUMN)urge president SBY to kick out Minister Sugiharto for poor performance, Detik.com reported. This would heat-up the internal conflict at the ministry, already divided with competing political groups/motives.

FSP-BUMN said the conclusion was made based on a survey with 10,000 SOE workers as respondents. Go to detik.com story for a complete report.
FSP-BUMN is in legal battle with Sugiharto's camp after Lendo Novo, one of his right-hand men, filed lawsuit against the organization which claimed to have 8 million supporters for defamation. Lendo filed the lawsuit on FSP-BUMN's statement that Lendo's ad hoc team to investigate corruption at SOEs have squeezed BODs and have been selective in eradicating corruption at SOEs.
At the same time, some groups reported MSOE's secretary M. Said Didu for alleged corruption. Didu's supporters consider this move as part of Sugiharto's camp campaign to kick Didu out of the ministry.
In another not-so-unrelated development, yesterday, members of Geram (Anti-Corruption Student Activists Movement) three rotten eggs to Hendarman Supandji, deputy attorney general for special crime. Geram mad at Supandji because he was believed to be the one who set free Eddie Widiono, state-owned electricity company PLN CEO. Widiono, detained for few months, was in a meeting with VP Jusuf Kalla at PLN's headquarter discussing 'crash program' on development of 10,000 MW power plants when Geram throwing the rotten eggs to Supandji.
Supandji himself is under the spotlight following the accusation of Rusdi Tahir, former Jakarta Attorney Chief, that the former regularly intervene the prosecution of corruption cases.

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Kalla Who's Who, available!

After months of research, I have completed the report on Kalla Who's Who, even though the English version is about a week away to complete. What's inside?


A. The Family
1) The Family Tree of Jusuf Kalla
2) Kalla siblings
3) Kalla children
4) The in laws
5) Close Aides (and their business interests)
B. Business Interests
1) Company profiles (Bukaka, Hadji Kalla, Bosowa Etc)
2) Who's in charge (key executives)
3) Business partners (key partners)
4) Recent projects
C. Politics
It's only available as hard copy, no soft copy, so it's not available online yet.
Total Pages: 500 pages

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Executions delayed, no clemency

While executions of three Christian militiamen who were found guilty of killing Muslims in religious clashes in 2000 on Sulawesi island, there is no sign that they would be awarded clemency as appealed by Pope Benedict XVI to Indonesia's president.

Fabianus Tibo, Marinus Riwu and Dominggus da Silva had been scheduled to die by firing squad early Saturday.
Speaking minutes before the men were scheduled to be killed, national police chief Gen. Sutanto said the executions would be carried out after Aug. 20, but gave no exact date, AP reported.
Moslem cleric & former president Abdurrahman Wahid, popular as Gus Dur, commented the delay saying it would give time to find the masterminds behind the clashes. As quoted by Detik.com on Friday, Gus Dur said the main issue is not about religious conflict but a political clash between central and regional administration officers.
Meanwhile foreign affairs minister Hasan Wirajuda claimed he had explained the execution to Vatican and is ready to address the world on the issue. "We had explained that before and ready to do that whenever there is question," Wirajuda said.
VP Jusuf Kalla reiterated government's position that all parties should honour the court's verdicts of death sentence.
On Friday, thousands of people in Maumere, East Nusa Tenggara province, rallied against the execution and asking for clemency.
Death sentence has always been a controversial issue around the world.
Last month, the execution of three Bali bombers had been adjourned in months, as they plan to file final appeals. The prosecutor has planned to execute Amrozi, Imam Samudra and Ali Gufron on Aug. 22, if there is no appeal from lawyers. The bloody bombings in 2002 killed over 202 people, most of them foreign tourists.
Human rights activists criticized government over the death sentences and rejects the execution of both Bali bombers and the three militiamen.
There is criticism toward media on what the critics called a hypocrisy as the protest against the death execution of three Christian militiamen and a group called Bali 9 (drug dealers) are louder than the Bali bombers.
From legal perspective, well...I quoted this from Indonesian National Commission on Human Rights (Komnas HAM) newsletter...
There are three major categories of crime in Indonesia which incur the death penalty: producing, processing, extracting, converting or making available category 1 narcotics (Narcotics and Psychotropics Act No.22, 1997, Article 80); murder with intent (Criminal Code, Article 340); and desertion or betrayal of the military in time of war military crimes (Military Penal Code, Article 64). These crimes can all incur execution by firing squad.

As an ordinary citizen, I could understand (not agree) with Bali 9 falls into the first category. But don't know whether both the Bali bombers and the three militiamen falls into the second category. (Lawyers & legal experts, please)
Neither I'm sure whether Pope Benedict XVI wrote a letter asking clemency for Bali bombers. But as far as I understand, Catholic Church's doctrine, as repeatedly stated by the late Pope John Paul II, opposes capital punishment in nearly all cases. Well, nearly, means not total opposition. Is this a kind of hypocrisy on the part of Catholic Church? What do you think? Enlighten me, please!

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A tribute to the victims of Lapindo disaster

So, finally, the president is about to visit the area burried with hot mudflow in Sidoarjo tomorrow, Detik.com reported. The online publication calls the visit an official visit to The Truly KL (Kuala Lumpur), or The Truly Mud River. And for me, it's a tribute to the victims of Lapindo disaster. Oops, the president bring with him Rp1 billion (US$110,000), cash! (???????)

In a separate development, a meeting chaired by VP Jusuf Kalla had decided four policies to handle the mudflow. As reported by Kompas.com, Detik.com, and Tempointeraktif.com, those policies are:
First, all remedy actions should take into account people's safety and give them decent compensation.
Second, make sure all infrastructures such as toll road and railway operates normally.
Third, all remedy actions should only create minimum impact to the environment.
Fourth, Lapindo Brantas Inc should bear all the costs.
There are two major issues to tackle. First, to stop the mudflow from Banjar Panji-1 drilling well. Second, the handling of million of cubic meters of mud overflown the surrounding area of drilling well.
On the first, so far the snubbing unit technique has been failed to stop the mudflow. The next will be relief well technique.
On the second, the mud would be processed first before diverted the liquid parts through pipelines to the river & sea to make sure it meet environmental standards.
The question, what if rain comes earlier than predicted to create a massive floods in the area? Help us God!

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Indonesia banking consolidation

A decade ago, Indonesia had 240 banks. Financial crisis in 1998 had cut significantly the number to 131 banks at the moment. It was the crisis that forced the consolidation in the country’s banking industry. But with per capita income of below US$1,500, the number is way too big and it cost the country a huge inefficiency of banking operations.

Under Indonesia Banking Architecture (API) launched in 2004, entry to the market has been tightened with minimum capital of Rp3 trillion (US$335 million) to open a new bank. Besides, banks, including the banks established by regional administrations, should have minimum capital of Rp100 billion by 2010.

In June 2005, Bank Indonesia (the central bank) launched the banking consolidation policy to anticipate the implementation of Basel II Accord by 2008. Under the policy, banks should have minimum core capital of Rp100 billion (US$11 million) as of 2010 and a minimum of Rp80 billion by the end of 2007. Those who failed to meet the requirement will be punished with limited operation such as maximum amount of third party funds at 10 times of core capital and maximum loans of Rp500 million (US$550,000).

The central bank actually hoped for voluntary mergers before 2007. But there are only few voluntary mergers and acquisitions so far. Some small-medium banks have tried to raise capital through stock market, but the progress has been slow. The latest major merger was back in December 2004 when three banks (CIC, Danpac & Pikko) merged. Last year, two banks (Arta Graha & Inter Pacfic) merged and Sinar Mas reentered the banking business with the acquisition of small bank PT Bank Shinta. But overall, the consolidation has been too slow.

Currently total capital of 131 banks is Rp120.8 trillion or average of Rp916 billion. It seems bigger than the requirement of Rp100 billion. But the Top 20 banks contributed to most of the capital and leave others with big question mark. There are way too many banks that serve one or two customers only, sometimes related to the owners or related parties/families with core capital less than US$10 million.

According to financial report as of June 2006, the Top 20 banks has combined capital of Rp114 trillion which leaves another 111 banks with combined capital of only Rp6 trillion or average of Rp54 billion. Most foreign-owned banks in the country have core capital above Rp100 billion with Bank of America as the only exception, raising the question of its future in Indonesia.

Profitability is also a big issue in Indonesian banking industry. As of May 2006, total assets in Indonesian banking system is Rp1514 trillion (around US$165 billion) while total profit is Rp15 trillion, reflecting a return on asset (ROA) of 1%. But why these banks don’t want to merge?

Central Bank and bankers argues that banking consolidation needs tax incentives, the authority of government. But no such incentives provided.

Desperate on the bank’s owners to merge voluntarily and the slow progress in banking consolidation through capital requirement, Bank Indonesia then launch the single presence policy, which practically forbid a company or someone owns more than a bank. But the policy most likely would only consolidate big banks, not the small banks. For example, Temasek-related banks (Danamon, BII & DBS Indonesia), Khazanah (Bank Niaga & LippoBank), Panin Group (Panin & Victoria), Standard Chartered (Standard Chartered Indonesia & Bank Permata), or Rabobank (Rabobank Indonesia and two banks it acquired recently—Bank Haga and Hagakita, from Djarum Group which controls Bank Central Asia/BCA) and ANZ-ANZ Panin.

If the central bank fair enough to implement the policy, state-owned banks should be merged or consolidated as well. But in normal situation, it’s difficult to merge state-owned banks. Efforts to merge PT Bank Negara Indonesia (BNI) Tbk and PT Bank Tabungan Negara (BTN) collapsed last year on political maneuvers from the proponents and opponents.

Vice President Jusuf Kalla indirectly opposed the idea to merge state-owned banks arguing they have different functions in the economy. Strong resistance has always been at the state-owned banks themselves, especially workers and the management, something the government can’t just neglect.

This is great dilemma and political test for Indonesian government as neglecting the consolidation based on single presence policy would be discriminative and against the fair competition law.

Confronting such dilemma, Central Bank has softened its stance on single presence policy. Instead of forcing the owners to divest or merge the banks, they’re given option to establish a holding company to manage the banks.

Some banks have responded the move in different ways. Djarum Group, who owns the largest private bank PT Bank Central Asia (BCA) Tbk with Farallon Capital, for example, decided to sell two other banks (Haga & Hagakita) to Rabobank last month. But this had leave Rabobank with further question, whether it will merge its subsidiary with the two banks. Singapore’s OCBC has decided to merge OCBC with NISP.

Singapore’s Temasek is yet to decide the future of its banking ownership in Indonesia (Danamon, BII & DBS Indonesia). Malaysia’s Khazanah has repeatedly denies speculation about merger of its Indonesian banks (Niaga & Lippo). While market has speculated the possible offloading of Niaga and keeping LippoBank, Khazanah has option to merge Niaga & Lippo or establish a new holding. The same would apply to Stanchart or Rabobank.

How about the small local banks?

Some small-medium banks have entered the stock market to raise capital. There are some, which plans to float their shares in the coming months. But most of them are being the targets of acquisition by bigger groups. There are around 20 banks in this category. And we will see more mergers and acquisitions to come.

Further consolidation is subject to Central Bank’s firm decision to implement the architecture it drafted. Under the architecture, there will be three categories of banks operating in Indonesia. First is international bank, those with capital above Rp50 trillion (US$5.6 billion); second, national bank (capital from Rp10 trillion to Rp50 trillion); and focus bank (Rp100 billion to Rp10 trillion). None of the banks operated in Indonesia falls into the first category. A merger of state-owned banks could create one. And only three existing banks are eligible to get the national bank status with nation-wide operation.

Such categorization would consolidate further the banking industry and streamlining the operation of many banks which then boost average assets per customer in most banks and reduce significantly the banking operational costs. We will see more the merger of small-to-medium size banks to get the status as national banks.

Those who will be affected by single policy

Group Indonesian Banks

OCBC OCBC Indonesia
Bank NISP
UOB UOB Indonesia
Bank Buana
Khazanah Niaga
Lippo
Temasek Danamon
BII
DBS
Stanchart Stanchart Indonesia
Permata
Rabobank Rabobank Indonesia
Haga
Hagakita
Panin Panin Bank
ANZ Panin
State-owned banks Mandiri
BRI
BNI
BTN
BEI

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JSX failed to delist Bukaka

Jakarta Stock Exchange (JSX) authority decided to maintain the shares listing of PT Bukaka Teknik Utama Tbk, a company controlled by VP Jusuf Kalla's family, even though the engineering company failed to meet the deadline set to submit a financial report with higher grade than disclaimer by the end of July.

Detik.com quoted JSX director Eddy Sugito saying the exchange will conduct a public hearing to listen Bukaka's plan to improve. JSX argued the decision not to delist Bukaka shares is for the sake of public investors.
Other reasons?
Some readers wrote to me few minutes ago that JSX is afraid of 'pressures' from people above, those in the high places!
Read my previous posts on Bukaka:
1)Bukaka's Problems Worsen (in front page)
2) Last Chance for Bukaka

3) Achmad Kalla: Ramp way for big brother

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