INDONESIA Trends and Developments Contributed by: Ira A Eddymurthy and A Charlie R Malessy, SSEK Law Firm
risk management in handling state assets and making investment decisions, it is apparent that these provisions were designed to allow Danan - tara greater agility in executing investments, and to shield such investments from political interfer - ence by other government institutions. That said, the government has clarified that the Audit Board of the Republic of Indonesia (BPK RI) retains authority to examine Danantara’s financial management and accountability. Despite these developments, it is too early to assess whether the governance model adopted under the SOE Law will prove effective in prac - tice, or whether law enforcement institutions, including the police, prosecutors, and the Cor - ruption Eradication Commission (KPK), will inter - pret and apply the provisions concerning Dan - antara’s accountability in line with the legislative intent. As such, further developments will need to be closely observed over time. Major Reforms to the Operational Structure and Accountability of SOEs With the enactment of the amended SOE Law, the Indonesian government has initiated signifi - cant reforms to the structure and governance of SOEs. One of the most substantial changes concerns the respective roles of the Minister of SOEs and Danantara in the oversight and man - agement of SOEs. Under the new framework, Danantara is formally designated as the gov - ernment’s principal vehicle for exercising con - trol and strategic management over all SOEs in Indonesia. Accordingly, the SOEs Law mandates the establishment of two new SOE holding enti - ties, namely an investment holding entity and an operational holding entity, jointly established by Danantara (as a separate legal subject) and the government (represented by the Minister of SOEs). Danantara will hold a 99% ownership
stake in each of these holdings, while the state will retain a 1% equity interest in the form of golden shares, granting it special rights. The functions of the two holding entities will dif - fer substantially. The operational holding entity will be responsible for the day-to-day opera - tional management of all SOEs. It is intended to serve as the holding company for all SOEs across various industries, thereby centralising operational authority under one unified platform. As a result, SOEs across Indonesia are currently undergoing extensive reorganisation to ensure that the operational holding entity becomes the majority shareholder of each sectoral holding SOE, while the state (through the Minister of SOEs) assumes a minority position with desig - nated golden shares – either in combination with ordinary shares or as standalone instruments. It is important to note that this transformation will not affect the legal status of these enterprises as SOEs. The amended SOE Law has expanded the definition of an SOE to include not only enti - ties in which the state owns all or a majority of shares, but also to those in which the state holds special rights through golden shares, regardless of whether it has majority or minority ownership. Meanwhile, the investment holding entity is intended to execute asset management and investment initiatives as directed by Danantara. Unlike the operational holding entity, this invest - ment vehicle will not be involved in the daily operational affairs of SOEs. Instead, its function is to implement strategic investment programmes using the capital allocated to it, under the purview of Danantara’s broader investment agenda. Consistent with the legal treatment of Dananta - ra, the amended SOE Law affirms that any profit or loss incurred by an SOE is attributable solely to the SOE itself and shall not be deemed a profit
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