Telkom vs AriaWest<\/p>\n
State PT Telkom's decision to unilaterally terminate its joint
\noperation scheme (KSO) contract with PT AriaWest International
\ncould turn what was hailed in early 1996 as the herald of world-
\nclass management and efficiency in Indonesia's telecommunications
\nsector into messy litigation proceedings.<\/p>\n
Telkom said on Monday it had to make the move following a
\nnumber of disagreements with AriaWest over their KSO for the West
\nJava region, which was launched in January 1996 and was supposed
\nto run until 2010.<\/p>\n
The termination notice, which was immediately rejected as
\ninvalid by AriaWest, was the culmination of protracted disputes
\nbetween the two parties over the KSO implementation. The two have
\ntraded allegations in the media of breaches of contract since
\n1999, and in May AriaWest filed a US$1.3 billion arbitration
\nclaim against Telkom with the head office of the International
\nChamber of Commerce in Paris.<\/p>\n
The KSO contract signed in October 1995 essentially stipulates
\nthat Telkom will allocate its employees and facilities in West
\nJava to the exclusive use of the investor (AriaWest), who in turn
\nshall be responsible for the operation and financial management
\nof the telecommunications facilities in that region during the
\n15-year KSO period.<\/p>\n
Under the contract, which was amended in mid-1998 after the
\nmeltdown of the rupiah, AriaWest is required to install a minimum
\nof 190,000 new telephone lines, pay Telkom an up-front license
\nfee of $30 million and a monthly minimum fee of Rp 25.9 billion
\nand to give Telkom a specified share of the KSO profits.<\/p>\n
Similar terms were applied to four other KSOs in Sumatra,
\nCentral Java, Kalimantan and Eastern Indonesia. These KSOs were
\nsigned with international consortia, all involving telecoms
\noperators from the U.S., France, Australia, Japan, Britain and
\nSingapore.<\/p>\n
However, even before the ink on the contract with AriaWest had
\ndried, the deal had run into trouble, embroiling Telkom and
\nAriaWest in endless bickering over technical details related to
\nthe number of lines transferred or built, financial control,
\noperation management and incremental increases in telephone
\nrates.<\/p>\n
Telkom management and employees, long accustomed to enjoying a
\nmonopoly with all its attendant privileges, seemed unhappy with
\nthe KSO, which was enforced during the authoritarian Soeharto
\nregime. For example, Telkom employee cooperatives, which were
\nused to being given procurement contracts for equipment and
\nservices from utility companies, were required under the KSO to
\ngo through a bidding process. But the disillusionment only
\nexploded into an employee revolt against AriaWest after the fall
\nof Soeharto.<\/p>\n
That the dispute between AriaWest and Telkom appears to be
\nmore acrimonious than the row between Telkom and other KSO
\noperators is partly due to the fact that the KSO in West Java is
\nthe largest of the five KSOs, and the capital Bandung, where
\nAriawest is headquartered, also happens to be the site of
\nTelkom's head office.<\/p>\n
The problems were exacerbated by the meltdown of the rupiah in
\nlate 1997, which made the KSO operations unprofitable without a
\nsignificant increase in telephone rates. But the last straw was
\nthe new telecommunications law enacted in September 1999, which,
\namong other things, allows for the early termination of Telkom's
\nmonopoly of domestic telecommunications and Indosat's monopoly of
\ninternational telecommunications.<\/p>\n
But the law itself should not have caused problems for the
\nKSOs. The legislation that opened the domestic and international
\ntelecommunications markets to new competition was, in fact, long
\nexpected by foreign investors. But the way things have developed,
\neven foreign investors operating the KSOs seem desperate to get
\nout due to the uncertainty and Telkom's hostile attitude<\/p>\n
What really burned the KSO operators, especially AriaWest, was
\nthe manner in which Telkom and Indosat, with the government's
\nconsent, swapped their exclusive rights without any consideration
\nfor the enormous losses the change would inflict on the KSO
\noperations. As Telkom agreed to end its monopoly in 2002 and
\nIndosat in 2003, all the basic assumptions used for investments
\nalready made by the operators in their 15-year KSO deals were
\nturned upside down.<\/p>\n
But it is not too late for Telkom to mend things with AriaWest
\nand work out an amicable settlement. What is urgently needed,
\nthough, is for the government to take the initiative to
\nfacilitate negotiations between Telkom and AriaWest to adjust the
\nKSO to the new telecommunications law and the new business
\nenvironment it brought about.<\/p>\n
Unilaterally terminating its KSO with AriaWest could plunge
\nTelkom into messy litigation proceedings with the accompanying
\nnegative international publicity, and could also severely strain
\nTelkom's financial resources to compensate for the KSO assets and
\nconsequently debilitate its investment capacity.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/telkom-vs-ariawest-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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