Indonesia Can Nationalize Freeport!

Some of us might think it is a crazy idea to nationalize foreign concerns who have invested much money here. That’s an unprecedented dodgy action and unachievable, because it infringes a business contract. And the unintended consequence is foreign investors will shy away from doing business in Indonesia.

Is this true?

Based on our own experience 3 decades ago, nationalization is not harmful as expected. Back then Indonesia had first-ever nationalized an outstanding foreign company in which it was executed so elegantly by the then-President Soeharto administration.

Late Cacuk Sudarijanto, one of Indonesia’s best business managers recounted the following in his biography, Belajar Tiada Henti (Lifelong Learning).

In the wake of New Order, in 1967 US-based ITT (International Telephone and Telegraph) was welcomed investing in Indonesia. It was the second American company who came in after Freeport. ITT established PT. Indosat (Indonesia Satellite Corporation) with a hundred percent of shares. Indosat was to provide telecommunication services including construction of Jatiluhur earth station, whereas Freeport to mine: copper, gold, etc in Papua.

After having completed the construction of earth station for satellite communication in 1969, ITT would have concession to operate it for 20 years (1989).

It was not explained further, but in September 1980, Pak Harto signed a Presidential Decree to buyout all shares of ITT in Indosat. It was an uphill and almost impossible task since the contract would be ended in 1989.

Led by State Minister of Administrative Reform, JB Sumarlin as chief of government negotiators, Indonesia somehow managed to takeover Indosat gracefully by buying it at reasonable price. In 1967 ITT spent to the tune of $6 million, and in 1980 Indosat was priced at $43.616 million.

Of course this takeover rattled the existing Indosat’s high-salary professionals. Egregious government bureaucracy cast shadow in the advent of Indosat’s new era. Assuming unruly management of government couldn’t survive Indosat, let alone made it better.

Many of Indosat’s management, Cacuk included, think of exodus. However, the then Finance Minister, Ali Wardhana, invoked their nationalism and asked Jonathan Parapak, Johannes Djajadi, Cacuk to be the directors of Indosat. He convinced them that the government would stay out, their salary remained high and they can continue the modern management practice. Even Ali Wardhana challenged them to make Indosat to be the best State-Owned Enterprise (SOE).

Indosat didn’t collapse and but enjoyed a crescent progress. Indonesian managers had proved they could do it. Indosat declined the consulting management firm and in the process developed management system with self-confidence. Later Cacuk was asked to take the helm of sluggish SOE, Perumtel/Telkom and made it much better.

Unfortunately this nationalization movement had never spread out. Pak Harto administration stopped short of nationalizing Freeport which was foolishly given contract renewal in 1991.

Holy smoke, in 2002 under Megawati administration who promoted people’s economy divested most of government’s shares in Indosat to Singapore Technologies Telemedia Pte. Ltd and Indonesia became minority in ownership.

The essence of the story is that Indonesia must not fall for convention wisdom of harmful nationalization. Indosat is a case in point. Indonesia can nationalize Freeport or other foreign company operating here through negotiation and the time is right now before the mining is used up. But Indonesia needs the smart negotiators who are armed to the teeth like JB Sumarlin and Ali Wardhana.

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