Corporate Governance of Sugar Mills in East Java: A Transaction Cost Economics Perspective
ABSTRACT: Despite Indonesia’s
overall achievements during the past two decades, the economy is encountering a
series of problems. One of the biggest challenges is the unsatisfactory
performance of the state-owned enterprises (SOEs). Subsidisies and uncovered
loans to the SOEs have drained the government’s fiscal resources, and the
signing off of employees creates many social problems. Compared with the SOEs
in other sectors, state-owned sugar mills face more serious crises which not
only jeopardise the social fabric, but also endanger the production. Research
results strengthen the statement that the basic problem in sugar mills is management
inefficiency resulting in high transaction costs. This research compares the
transaction costs between state-owned (Ngadiredjo) and privately-owned (Kebon
Agung) sugar mills. The study shows that in Kebon Agung Sugar Mill transaction
costs are higher than production costs, while in Ngadiredjo Sugar Mill the
reverse is true. However, the high transaction
costs in Kebon Agung Sugar Mill cannot be attributed directly to
inefficient institutions, because Ngadiredjo Sugar Mill incurred high costs for
plants, land preparation, and fertilizer, which decreased the proportion of
transaction costs. If analyzed in
detail, the following facts are revealed: (i) market transaction costs in Kebon
Agung Sugar Mill are higher than in Ngadiredjo Sugar Mill. This is because
Kebon Agung Sugar Mill has established cooperation with sugarcane farmers in
the form of extensions and transport subsidies; and (ii) the political transaction costs
proportion in Ngadiredjo Sugar Mill is higher than in Kebon Agung Sugar Mill
because of the imposition of many ‘illegal’ fees.
Author: Ahmad Erani Yustika
Journal Code: jpmanajemengg070017
