Antitrust body challenged

The enforcement of Law No. 5/1999 on the prohibition of monopolies and unfair business practices is under threat by either technically incompetent or corrupt district courts.

That is how we read the district courts' decisions in Jakarta last week, which overturned rulings made in May by the Business Competition Supervisory Commission (KPPU) against three of six business parties it found to have colluded to determine the winning bidder for the government's 72 percent stake in Indomobil.

Our concern arose not because the courts decided in favor of the business parties implicated in the sham competition, but more for the quality of the courts' judgments.

The Central and West Jakarta District Courts separately found that the definition of conspiracy used by the supervisory commission in ruling against Deloitte Touche FAS, PT Bhakti Asset Management and businessman Pranata Hajadi was not in accordance with Article 22 of Law No. 5/1999.

However, whether due to gross technical incompetence or because of tremendous financial lobbying by the business parties, the courts did not go far enough to rebut the points of consideration or to deny the well-documented and rightly constructed material evidence used by the commission as the basis for its 114-page ruling.

The courts' failed to distinguish between the articles that govern market abuse, or conspiracy to gain control of the market, from Article 22, which specifically regulates business conduct within an open tender for goods or services.

Article 22 stipulates that business actors are prohibited from conspiring with other parties in order to arrange and/or determine the winner of a tender, which could result in the occurrence of unfair business competition.

That is the letter of Article 22. Its spirit means a collusive tender is one in which competitors agree to influence the result of the tender for the benefit of one of the participants, either by not submitting tenders or by filing fake tenders.

The applicability of this article does not necessarily depend on a written or oral agreement, but also arrangements, whether they are legally binding or not, through communications or shared knowledge of business decisions that lead to concerted action or parallel behavior on the part of the players.

After speaking to dozens of witnesses from the business parties and government institutions involved in the tender for the government's 72 percent stake in PT Indomobil Sukses International, and examining 170 documents related to the tender process, the commission built up a body of material evidence proving that the bidders were involved in a concerted action to create a sham competition.

The commission also found strong evidence that some government officials involved in the tender condoned the violation of basic bid procedures and major tender rules.

All of this proved that the three final bidders were not qualified, according to the procedures and requirements set by the Indonesian Bank Restructuring Agency (IBRA) for the submission of bids.

The commission also found that Deloitte, as the financial adviser to PT Holdiko Perkasa, the nominated government owner of Indomobil, did virtually nothing to prevent the sham competition, thereby failing to protect the interests of the seller (Holdiko), and by association the interests of the Indonesian government.

The commission proved that one bidder, Bhakti Asset Management, signed the confidentiality agreement that allowed it access to information, memos, procedures for the submission of bids, and the draft conditional share purchase and loan transfer agreement on Dec. 4, 2001, only one day before the deadline for the submission of bids.

Even though Indomobil is a publicly traded company, it is hard to believe that Bhakti could have made a proper assessment and filed a viable bid, given the size and complexity of Indomobil and its many subsidiaries, convertible bonds and contracts with overseas car principals, without more than one day of access to that confidential information.

Businessman Pranata Hajadi was found to be an investor in two bidders, PT Alpha Sekuritas Indonesia and PT Cipta Sarana Duta Perkasa, which was eventually declared the winning bidder.

The commission also proved that the three final bidders recommended to Holdiko the same amendments to several major requirements for the submission of bids, and found more than 20 similar markups in the tender documents filed by Alpha and Cipta Sarana.

Holdiko required the resubmission of binding bids if the price difference between the winning bid and others was less than 5 percent, but the bid prices of the two losing bidders was just sightly more than 5 percent lower than the winning bid price. Coincidence or conspiracy?

There are numerous other pieces of evidence that point to conspiracy, and other indications of bid rigging outlined in the commission's ruling, as elaborated on in another article on this page. Yet the courts seemed to simply ignore all of this evidence in making their decisions.

The final judgment on the matter will come from the Supreme Court, because the commission has decided to appeal the district courts' decisions. Whatever the Supreme Court's decision, it will go a long way in determining whether the law can be properly enforced to maintain fair market and business competition.