Indonesia’s largest state-owned construction firms – Wijaya Karya (Wika), Pembangunan Perumahan (PP), Adhi Karya (Adhi) and Waskita Karya (Waskita) – have sunk deeper into financial distress, posting a combined loss of around Rp 28 trillion (US$1.7 billion) in 2025. Far from incidental, these losses reflect years of aggressive and often unprofitable investments tied to the infrastructure push under former president Joko “Jokowi” Widodo, turning what was once a growth engine into a mounting financial burden.

Against this backdrop, the long-delayed consolidation plan for construction state-owned enterprises (SOEs) is once again under scrutiny. Initially proposed during SOEs Minister Erick Thohir’s tenure, the plan has been repeatedly postponed and is now expected to materialize no earlier than the second half of 2026 under the coordination of the Danantara sovereign wealth fund.

The consolidation aims to merge seven construction SOEs — including Wika, Waskita, PP, Adhi, Nindya Karya and Brantas Abipraya — into three entities organized by business lines: buildings, infrastructure, engineering, procurement and construction (EPC). In theory, this restructuring is intended to improve efficiency, reduce overlap and strengthen financial resilience.

In practice, however, the delay reflects a deeper concern: These companies are not yet financially ready to consolidate. Danantara has prioritized financial recovery before integration, focusing on improving cash flow, restructuring debt and optimizing nonproductive assets. Yet this approach faces a fundamental challenge. The financial condition of these firms continues to deteriorate, creating a vicious cycle in which losses weaken balance sheets, limit financing capacity and further constrain recovery efforts.

The scale of the losses is striking. In 2025 alone, Wika recorded the largest deficit at Rp 10.14 trillion, followed by PP at Rp 8 trillion, Adhi at Rp 5.4 trillion and Waskita at Rp 4.48 trillion. Rather than stabilizing, losses have deepened compared with previous years.

Part of the deterioration is linked to impairment charges. For instance, PP’s impairment losses surged from Rp 1.89 trillion in 2024 to Rp 7.35 trillion in 2025, largely driven by its property segment. As a result, the property segment accounts for 99 percent of the company’s losses, highlighting the failure of its diversification strategy.

Wika, meanwhile, presents a different but equally concerning picture. While it faced decreasing fair value on inventories and property investment, more than half of its losses originated from infrastructure and building construction activities. A significant portion is tied to its involvement in the Whoosh Jakarta-Bandung high-speed rail project through its stake in PT Pilar Sinergi BUMN Indonesia, a consortium of Indonesian SOEs for the project.

Despite reducing its ownership stake from 39.12 percent to 33.36 percent, Wika remains exposed to mounting losses from the high-speed railway, which recorded a net loss of Rp 4.52 trillion in 2025. As a result, Wika’s share of losses has continued to rise sharply, reaching Rp 1.66 trillion. Without a clear and sustainable financing or repayment strategy, such liabilities will continue to weigh on its financial performance.

Beyond individual cases, the broader structural issue lies in the business model of construction SOEs. During the infrastructure boom, these firms were heavily concentrated in government-led projects, with limited diversification into commercially viable segments. This overreliance has translated into rising debt burdens.

The impact is evident in their financing costs. For Wika, what was once a manageable financing cost of about 3.2 percent of total revenue in 2019 has surged to 22.3 percent in 2025, with infrastructure-related projects accounting for the majority of these costs. High leverage has eroded profitability and reduced financial flexibility.

Efforts to reduce debt have also proven insufficient. While total liabilities have gradually declined, equity positions have weakened significantly because of accumulated losses. In extreme cases, such as Wika and Waskita, equity attributable to shareholders has turned negative. Without non-controlling interests, their total equity would already be in deficit territory.

This deterioration has serious implications for liquidity. Wika and Waskita’s debt-to-equity ratios have reached 26.9 percent and 16.7 percent respectively, exceeding banks’ lending thresholds and effectively limiting access to fresh financing. Without external funding, these companies face increasing difficulty in sustaining operations, let alone expanding into new projects.

Against this backdrop, consolidation alone is unlikely to solve the problem. While merging entities may reduce duplication and streamline operations, it does not address the underlying issues of weak governance, project selection and financial discipline. Without fundamental reforms, consolidation risks merely pooling weak balance sheets into larger entities without improving their core viability.

More importantly, the stakes extend beyond corporate performance. Treating these losses solely as the result of flawed business strategies overlooks the structural nature of the problem. Construction SOEs play a critical role in delivering public infrastructure and supporting government programs. If their financial condition continues to deteriorate, the government’s ability to execute public works could be compromised, potentially affecting broader economic welfare.

Without such measures, consolidation risks becoming a cosmetic fix, merely rearranging the structure without repairing the foundation. And if the foundation remains weak, no amount of restructuring will prevent their next eventual collapse.