Definition of Privatization

What is privatization? According to Law Number 19 year 2003 concerning State Owned Companies (“UU BUMN”), privatization is the selling of shares belonging to a state owned company in a limited liability company with at least 51% (fifty one percent) of its shares owned by the Republic of Indonesia (“Company”), the remaining shares are partly or wholly owned by another party. The aim of privatization improves the performance and value of the Company, increase benefit for the State and the community, and stimulate owning shares by the community.

In the last couple of years, Indonesia has been vigorously performing privatization of state owned enterprises to enhance the welfare of the country. Privatization benefits the Company, the State and the community because it can provide a source of new funds for corporate growth and State Budget and it increases community participation and their level of control. In this article, the essentials regarding privatization of a Company according to the law will be discussed.

Purposes and Aim of Privatization

According to Article 74 UU BUMN,   privatization has the aim to:

  1. Expand community ownership of Companies;
  2. Increase efficiency and productivity of Companies;
  3. Create good and strong financial structures and financial management;
  4. Create an industrial structure that is healthy and competitive;
  5. Create Companies with global competitive capability and orientation;
  6. Growth of business climate, macroeconomics and market capacity.

Privatization is carried out with the purpose of increasing performance, adding value to the company and enlarge the role of the community in the ownership of Company’s shares.

How-to Privatize

Under Article 2 of regulating State Owned Companies Minister Number: PER-01/MBU/2010 concerning How to Privatize, Forming the Yearly Privatization Program and Appointment of Supporting Bodies and/or Professions and other Professions (“Privatization Minister Regulation”), privatization is accomplished by:

  1. The selling of shares in compliance with the rules of Capital Market;
  2. The selling of shares directly to the investor;
  3. The selling of shares to the management and/or employees of that Company.
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Privatization is performed by selling the State’s shares to the Company or the selling of shares in storage.

Yearly Privatization Program

Company privatization is not performed without planning, a Deputy is commissioned to draft a yearly privatization program. The Deputy is an Eselon I Unit, a part of the Ministry of State Owned Companies, whose job is to prepare a draft of policy used and to coordinate the execution of the policies in the field of privatization. It is the Deputy who prepares a list of Companies privatized, the method of privatization used as well as the types and amount of shares that will be sold. This document drafted by the Deputy will be delivered to the Technical Deputy who will give a written response. The Technical Deputy is an Eselon I unit, a part of the Ministry of State Owned Companies, whose job is to prepare the draft for used policy and to coordinate the execution of the policies in the field of the Company’s business. The respond will be at the latest 7 (seven) work days after the receiving date of the document by the Technical Deputy from the Deputy. The document drafted by the Deputy will obtain the status of the Yearly Privatization Program including the attachment of the written response from the Technical Deputy if there was any. Later on, the Yearly Privatization Program will be forwarded to the Privatization Committee to be given directions upon and to the Financial Minister to ask for recommendations.

The Privatization Committee itself is a coordination council established by the government to discuss and decide upon policies concerning Privatization in accordance to cross-sector policies.

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In reality, privatization is not only applied to Companies included in the Yearly Privatization Program. If any other Companies need to be privatized, then privatization can be performed in the same way as Companies included in the Yearly Privatization Program. After acquiring a recommendation from the Financial Minister, the privatization will be published to inform the community and consulted with the House of Representatives.

Appointment of Supporting Bodies and/or Profession and other Professions

The process of Privatization includes other supporting bodies and/or professions and other profession according to the needs arising during the privatization process and in compliance with regulating provisions. The supporting bodies and/or professions and other professions can be:

  1. Issue underwriter;
  2. Financial consultant;
  3. Public accountant;
  4. Law consultant;
  5. Appraiser;
  6. Notary;
  7. Securities administration bureau;
  8. Public Relations agency;
  9. Printing company; and
  10. Industry specialists to perform Privatization in specific sectors that according to the Minister’s consideration based on the Privatization Team’s suggestion might need specific supporting professions.

Supporting bodies and/or professions and other professions are appointed after open selection announced in the national newspaper, the State Owned Company Ministry’s website and if needed on the website of that Company and selection by the Deputy or Privatization Team.

Revenue of Privatization

Revenue acquired by the selling of State’s shares originating from privatization is transferred directly into the State’s treasury. Revenue of privatization of shares in deposit is transferred directly into the Company’s treasury. And revenue originating from privatization of a subsidiary of a Company is set to be a part of dividend interim, which is a dividend given before the end of a financial year caused by an abnormal revenue received by the Company.