There are concerns about the negative effects of this strategy on private business. But there is a more immediate challenge. Does the Indonesian government have the institutional capacity to effectively pursue such a plan?
While the government has provided strong policy support to SOEs, few institutional mechanisms allow for close consultation and coordination between the stakeholders of state-centred development strategy. As a result, conflicts have arisen in various SOE-led development projects.
At the beginning of 2016 two of the largest SOEs clashed. Conflicts arose between Perusahaan Listrik Negara (PLN) and Pertamina Geothermal Energy (PGE) during a purchase deal for electricity generated from geothermal plants. PGE argued that higher energy prices were an inevitable cost of continued renewable energy exploration, while PLN argued that it could not afford to pay such high prices. As the conflict intensified, the Ministry of Energy and Mineral Resources even suggested creating a new utility SOE that would focus only on renewable energy so that PLN could focus its own efforts elsewhere.
PLN has also been in direct conflict with the Ministry of Energy and Mineral Resources. PLN sees many of the energy policies issued by the the Ministry as unprofitable. One example is PLN’s opposition to the Ministry’s push towards expanding the bio content of diesel used in the power industry. Minister for Energy and Mineral Resources Sudirman Said, upon observing these conflicts, described PLN as a ‘disobedient child’ and pointed out that if the Ministry of SOEs is PLN’s father, then his Ministry is its mother. He emphasised that PLN should focus not only on financial performance, but also on its public-oriented obligations.
There have also been cases where government ministries have disagreed with the direction of SOE-led development projects. In early 2016, the Ministry of SOEs and the Ministry of Transportation clashed during the initial phase of the high-speed railway project — a joint venture between Indonesian and Chinese SOEs — which was assigned to Kereta Cepat Indonesia–China.
The public spat came soon after Jokowi launched the construction stage at the groundbreaking ceremony in January 2016. The Ministry of SOEs, with four of its companies involved in the project, tried to speed up the process but the Ministry of Transportation demanded more time for issuing the permit. The Ministry of Transportation was concerned with various issues, including the environmental impact, exclusivity rights, concession period and life span. During the bidding process in 2015, the Ministry of SOEs is known to have supported China while the Ministry of Transportation supported Japan.