For example, in the case of manipulation of SOE financial reports in the construction sector, an auditor is involved. The OJK needs to explain to the public how auditor supervision of SOEs is failing. Weak oversight by the OJK has exacerbated the situation and created loopholes for fraud.
The role of the Commissioner in question should include an early warning of funny business, if crooked Directors attempt to fund a fictitious project or manipulate financial reports. The root of the problem lies in the election of SOE Commissioners, often politically motivated, accommodating winning teams and party cadres, and not based on a track record of professionalism. As a result, SOE commissioners fail to work optimally, and even tend to be implicated in fraud detrimental to the State.
Financial distress Another challenge faced by SOEs is an increase in their debt burden, both to creditors and to vendors. A significant increase in debt burdens can be seen in the period from 2015 to April 2023, where total foreign debt of non-financial SOEs increased by US$17.8 billion, equivalent to IDR 267 trillion. This shows that the rate of increase in non-financial SOE debt is inversely proportional to private national companies, which fell by US$7 million over the same period. (FIGURE-1)
The aggressiveness of non-financial SOEs in piling up debt, particularly SOEs in the construction sector and power generation, is quite dangerous for the economy as a whole. Exchange rate pressures, rising interest rates and changes in external conditions will result in a tsunami of extra interest expenses for SOEs. Any claims that SOE assets have also increased in line with additional debt cannot be used as justification. Not all assets have an ever-increasing value; as a matter of fact, some actually depreciate over time. Total assets are not entirely able to cover debt payment obligations, because liquidation is long and complication, and may even be rejected by creditors.
Project in question
Most of the assigned SOE projects face problems due to the weakness of their planning phase. For example, the Jakarta-Bandung High Speed Railway (HSR) project, which will cost around US$8.7 billion or IDR131 trillion, runs a risk in that it is saddled with a long payback period. Assuming that the number of passengers is 600 with 68 trips per day, and a ticket price of IDR 350,000, it can indeed return capital in 25 years. However, that assumption was too ambitious.
Another challenge is the increase in cost overrun costs borne by the HSR consortium. Such cost overruns arose not because of the disruption of Covid-19, but because of erroneous project planning. Steep land acquisition costs, the level of imports of steel for construction, as well as the number of foreign workers from China added to the burden. Using the excuse that HSR technology cannot be produced domestically, expensive imported components dominate.
Accidents during construction also contributed to project delays, and were notable in terms of HSR project safety. As a result of cost overruns, projects previously categorized as Business to Business (B2B) became Government to Business (G2B), with substantial state budget intervention. The interest expense on fast train loans is much higher than originally planned. China offers a new cost overrun debt interest increase of 3.4%, while the initial interest offered was 2%. In terms of negotiations regarding loan interest, the position of the Indonesian government is quite weak. The highspeed train is an expensive project in terms of cost of financing. At the beginning of the Japanese proposal, it offered interest of only 0.1% for HSR financing, but the Indonesian government was more inclined to work with China.
Apart from the HSR project, estimated differences between investment and return are increasingly unequal. Several toll road sections only project a small Internal Rate of Return (IRR), so that they do not seem economically feasible. Pekanbaru-Bangkinang, Bengkulu-Taba Penanjung, and Sigli-Banda Aceh Sections 2 and 5 of the toll roads only have an IRR of 0.32%. Compared to building toll roads, yields from investing in government bonds can reach 6-7%. SOEs working on toll roads also need to bear the cost of financing of up to 7.9-11% in local currency loans.
Another criticism of infrastructure project development is that the economic benefits are sometimes overestimated during the planning phase. Toll roads that claimed to have an IRR of only 0.32% can often be justified if the estimated economic IRR reaches 23.8%. Even though the IRR figure is 23.8%, if we look at the reality when the toll road commences operation, it is not that big.
One of the drawbacks of the toll roads being built is that toll road transportation fails to attract logistics vehicle users, deterred by high tariffs. Even when there are toll roads, many logistics transporters choose to put up with jammed arterial roads. If the toll road is intended for private vehicles only, the consequence is that the aim to reduce logistics costs will not be achieved.