PLN's asset revaluation proceeds, with income tax to be waived

The government has appointed state surveyor company PT Sucofindo to conduct assets revaluation for state electricity company PT Perusahaan Listrik Negara (PLN), but analysts expressed skepticism that such a move alone would solve PLN's mounting debt problems.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that the appointment of Sucofindo to re-value PLN's assets had been approved by the Keppres 133/200 team, a team established by the government based on presidential decree (Keppres) No. 133/200 to restructure the country's electricity industry.

"Sucofindo is appointed because this state surveyor company has often conducted assets revaluation. It would need two to three months to complete the assets revaluation. So, it is expected that the revaluation would be completed early 2001," Purnomo said during a breaking of the fast gathering at his office on Friday evening.

As the assets revaluation would only be completed early next year, when the new tax law would come into force, consequently, PLN would be required to pay 10 percent income tax for the "income" PLN would get from the difference in value between the value of assets before the revaluation and after the revaluation.

PLN has estimated that the amount of income tax it has to pay from assets revaluation would be around Rp 10 trillion.

Nevertheless, Purnomo said that the government would try to free PLN from paying the income tax from assets revaluation because of PLN's weakening financial condition due to continuing losses it booked during the past few years, including this year.

"Although the new tax law will come into force (next year), if there is a political decision from the government, it can happen. As a minister of energy and supervisor for electricity development, I will support any effort to waive PLN from paying the income tax, so that the financial position of this state electricity company will improve. So, we will give a political decision to waive PLN from paying the income tax," he said.

But Purnomo acknowledged that asset revaluation would only be one of the ways to solve the various problems plaguing PLN. Other solutions for PLN would include the conversion of PLN's debt to the government into equity.

"We are still discussing this debt conversion into equity. What we have agreed upon is about the asset revaluation and the granting of subsidy for PLN," Purnomo said.

PLN president Kuntoro Mangkusubroto said recently that PLN's assets were currently valued at Rp 68 trillion. After revaluation, the assets would expand to Rp 193 trillion, with an assumption that the rupiah stood at Rp 8,000 per U.S. dollar. If the rupiah stayed at the current level of over Rp 9,000 per U.S. dollar, PLN assets would expand further.

According to Kuntoro's calculation, if the government did not give tax exemption to PLN, the company would have to pay income tax of Rp 10 trillion from assets revaluation. He noted that the value difference after revaluation would be around Rp 120 trillion (Rp 190 minus Rp 60 trillion), and this value would be reduced again by PLN's this year net losses of around Rp 20 trillion, and it would come taxable income of Rp 100 trillion.

Meanwhile, stocks market analysts contended that PLN's assets revaluation would not really solve PLN's problems.

"The assets revaluation concept to restructure PLN's debt serves only as accounting restructuring, and not financial restructuring," an analyst said.

The analyst explained that the asset revaluation would maintained PLN's leverage level - a ratio of debt compared to equity - as the assets revaluation would only boost the company's assets value but did not reduce the debt level.

Besides, the assets revaluation would not at all improve PLN's cash flow. On the other hand, PLN needed better cash flow to meet its soaring operation and investment costs to maintain its facilities.

Analysts said the better solution for PLN would be the debt to equity conversion as it would automatically reduce PLN's debt leverage, and therefore improve PLN's credit worthiness. This way, PLN would be able to secure more loans to improve its capital structure and therefore increase its operating income and improve cash flows.

One analyst suggested that the government pursue the approach employed by the Indonesian Bank Restructuring Agency (IBIRA) in restructuring the debt of two indebted business giants, Texmaco and Chandra Asri, for PLN debt restructuring.

"IBRA looks into the sustainable debt level for those big debtors, and then convert some of their debt into equity to reach a sustainable debt level. But, the government's approach for PLN is on the way around. This is strange," he said. (*)