Antitrust body challenged

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.