against PT Bumi Resources, Indonesia’s largest
coal company, revealed a backslide in national corporate
holding company Bumi PLC is investigating affiliate PT Bumi
Resources for financial and other irregularities, highlighting
lax corporate governance as an increasingly important
that these developments were unsurprising in the natural
resources sector, and stressed the importance of risk
assessment in the popular jurisdiction.
Indonesia watchers, PT Bumi Resources’ current
corporate governance issues were not much of a surprise, said a
Bumi PLC, a
London-listed holding company, was created after financier
Nathaniel Rothschild utilised shell company Vallar to purchase
stakes in PT Berau Coal Energy and PT Bumi Resources in
November 2010. These assets were subsequently listed on the LSX
as Bumi PLC.
Rothschild, major shareholders include the powerful Bakrie
Group, controlled by family members including Aburizal Bakrie,
chairman of Indonesia’s Golkar Party and favourite
for Indonesia’s 2014 presidential election. Many
media outlets have reported tension between Rothschild and the
Leahy, founder of risk advisory firm Blackpeak and
editor-at-large for the Asian Corporate Governance Association,
told IFLR that he is not surprised by some of the issues
surrounding PT Bumi Resources.
One counsel noted that the Capital Market and Financial
Services Supervisory Agency (Bapepam-LK) looked into some of PT
Bumi Resources’ biggest groups before, and
concerns arose in 2008/09.
But it is
difficult for Indonesia’s regulators to begin
enforcement actions. Leahy said that Bapepam-LK was
well-intentioned but hamstrung by a hopelessly low budget,
which meant that enforcement in the securities market thus far
had been basically non-existent. He added that he hoped the
implementation of the OJK as a super-regulator may help monitor
another source warned that while Indonesia’s
regulators are generally well-run, they have lacked firepower
in enforcement – particularly with powerful groups
like the Bakries. The OJK must improve enforcement rather than
just add an additional layer of regulation, he said.
long-term changes are necessary to see corporate governance
developments in Indonesia.
corporate governance score in the recent CG Watch 2012 survey,
undertaken by CLSA Asia-Pacific Markets and the Asian Corporate
Governance Association, was the lowest of the countries
surveyed, and the report said that reforms have
hasn’t deterred foreign investors. Leahy said,
"Given the amount of FDI coming into Indonesia,
there’s almost a sense of entitlement and
complacency because money is coming in anyway."
Rather than a
quick change mandated by investors and regulators, Leahy said
that this is a generational issue. Indonesia’s
well-established democracy means that the people’s
will is important, and as they become fed up with corruption,
corporate governance standards will improve.
For more on
Indonesian foreign investment, sign up to IFLR’s
IndonesiaForum 2012 here: https://www.euromoneysecure.com/orders/gen/default.asp?Page=100
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