Jakarta. Sovereign wealth fund Danantara is forging ahead with its plan to greatly slash the number of Indonesia's state firms, with the agency’s senior official admitting that intense internal competition has turned these businesses into "cannibals".

Southeast Asia's biggest economy aims to cut the number of its state-owned enterprises (SOEs) by more than half, from around 1,000 to just over 200, for better efficiency. The figures include the sub-subsidiaries. Danantara, now that it manages all state companies, is in charge of overseeing this ambitious overhaul.

Febriany Eddy, the managing director at Danantara Asset Management, disclosed more details on the reasoning behind the trimming, citing competition between the SOEs. This is common among businesses that offer similar products and services. Public tenders have also seen companies dropping their price as low as possible just to secure the deal, according to Febriany.

“Many of these state firms are like cannibals with one another ..., such as when they are taking part in tenders,” Febriany told a press briefing in Jakarta on Friday. 

She named the lackluster synergy between the low-cost airline Citilink and the flag carrier Garuda Indonesia as another example. Citilink is under Garuda’s wings as its subsidiary. 

“These two may operate on different segments. One is a low-cost carrier, the other [Garuda] is a full-service airline. But it doesn’t mean they can kill one another at certain routes. It is a reality that we have to admit,” she said.

Another reason for the massive consolidation plan is that half of Indonesian state firms today are in the red. In some cases, companies would even delegate what Febriany called an "easy task" to four subsidiaries, thus leading to redundancy and inefficiency.

In addition to mergers, the eight-month-old Danantara is keeping the privatization option open in the ambitious overhaul, although the fund will take into account some factors before transferring the ownership to the private sector. This includes whether the companies are doing business in the “right sector”.

“The 200 companies that we will keep are those playing in the right sector, of the right size, and the ones that give lots of benefits and value to Indonesia. … This streamlining and consolidation aim to get rid of the internal competition and cannibalism,” Febriany said. 

A merger between Garuda Indonesia and Pelita Air is in the pipeline. Pelita Air is the commercial aviation subsidiary of the oil producer Pertamina. Danantara remains tight-lipped on when the merger will reach completion, as the plan is still under review. 

“But [the merger] will see them [Garuda] copying Pelita Air’s best practices, and vice versa. That’s how the companies can strengthen one another,” Febriany revealed to reporters.

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