October 10, 2018 / 2:08 AM / 2 months ago

Rising debt at Indonesian SOEs poses indirect fiscal risks: OECD

NUSA DUA, Indonesia (Reuters) - The financial burden placed on Indonesian state-controlled companies to develop infrastructure could result in higher fiscal risks for the government, the Organisation for Economic Cooperation and Development (OECD) said.

In an economic report on Indonesia published on Wednesday, the OECD said the presence of Indonesian state-owned enterprises (SOEs) across the economy is more extensive than any other country it monitors except for China.

Debt taken on by these companies to finance infrastructure projects could expose them to cash flow constraints, “particularly if interest rates increase or projects are delayed,” according to the report.

“Recognized contingent liabilities were only 0.01 percent of GDP in 2017, as these are confined to government guaranteed loans. But the potential need for capital injections represents an indirect fiscal risk,” the report said.

The OECD released its report on the sidelines of the IMF-World Bank annual meetings being hosted by Indonesia on the resort island of Bali.

The report said government policies to keep fuel and electricity prices unchanged despite higher global oil prices have also prevented some firms from passing on rising costs onto customers, hurting their balance sheets.

State utility Perusahaan Listrik Negara (PLN) recorded a net loss of 5.3 trillion rupiah ($361.77 million) in the first half of this year due to the rupiah’s slump. If it books losses this year, it would be the first time since 2013. State energy firm Pertamina’s first-half profit was its lowest in four years.

The government is awaiting parliamentary approval for its proposal to inject 17.8 trillion rupiah ($1.17 billion) in capital to three SOEs next year, including 10 trillion rupiah to PLN.

Earlier this year, ratings agency Standard & Poor’s said the leveraging level of 20 listed and rated state-owned enterprises (SOEs) has increased to around an average of 5 times debt-to-EBITDA, jumping from 1 time in 2011.

Ensuring good governance and more transparency are crucial to improve the condition of Indonesia’s SOEs, OECD said, while the government should allow more private sector participation in infrastructure development.

The Indonesian government has pushed state infrastructure developers to diversify funding source from debt to equity-based financing to help mitigate this risk. A dozen Indonesian SOEs are expected to sign financing deals for infrastructure projects later this week.

Reporting by Fransiska Nangoy and Gayatri Suroyo; Editing by Simon Cameron-Moore

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