AriaWest still operates West Java system
JAKARTA (JP): The arbitration claim filed by AriaWest International against state-owned PT Telkom is only for damages caused by numerous fundamental breaches by Telkom of the contract for the Joint Operating Scheme (KSO) in West Java, AriaWest's lawyer Andrew Sriro said on Wednesday.
"The Notice of Arbitration filed with the International Chamber of Commerce in Paris on Tuesday has nothing to do with the issue over the planned settlement of the West Java KSO," Sriro told The Jakarta Post.
He asserted that AriaWest remained fully in charge of operating and managing the West Java KSO, as its 15-year contract with PT Telkom will expire only in December 2010.
Under the KSO scheme, designed by the government in cooperation with the World Bank and launched in 1995, Telkom ceded its fixed-line telephone operations in five major regions to five joint ventures between Indonesian companies and multinational telecommunications providers.
AriaWest, which is 52.5 percent owned by Indonesia's Artimas Kencana Murni, 35 percent by MediaOne International BV and 12.5 percent by the Asian Infrastructure Fund, won the KSO for West Java for 15 years.
However, AriaWest claims that PT Telkom treated the West Java KSO in bad faith from the outset and breached many fundamental provisions of the contract, thereby making it impossible for AriaWest to operate efficiently and smoothly.
"The US$1.5 billion damages demanded in the arbitration notice were the losses suffered by AriaWest due to Telkom's violation of most of the fundamental provisions in the contract," Sriro added.
Sriro said the dispute over compensations for possible termination of the KSO contract before its original expiry date in December 2010 was completely another issue that also had yet to be resolved.
Among the fundamental breaches of the contract alleged to have been made by Telkom, but which were repeatedly denied by the state company were:
* Telkom's failure to transfer management and control of the KSO to AriaWest, causing serious damage to KSO operations and management-employee relations.
* Telkom's refusal to hand over the bank accounts holding the KSO revenues until last September, retaining control over the collection accounts and mechanism, and since March, 2001, stopping the transfer of funds from the collection accounts to the KSO accounts.
* Telkom voluntarily relinquished its market exclusivities (monopoly of domestic calls) and negotiated compensation for itself without consulting AriaWest and without arranging for compensation to AriaWest for its substantial losses.
The 1999 Telecommunications Law does not force Telkom to relinquish its monopoly of domestic calls but only stipulates that the monopolies held by Telkom and Indosat (for international calls) could be restricted by agreement with the government in exchange for a legal entitlement to financial compensation in recognition of such restrictions.
Even though the West Java KSO contract will expire only in December 2010, Telkom and Indosat subsequently negotiated swaps of their exclusive rights between themselves. Telkom will gain an international gateway and Indosat a domestic operating license in 2003, but no compensation was made for the enormous losses which would affect the West Java KSO (and the other four KSOs).
The government, which owns a majority stake in both Telkom and Indosat, reshuffled the rights of Telkom and Indosat without a loss to itself as the majority shareholder in each. The losses were shifted to AriaWest and the other four KSO operators.
* Even though the KSO agreement, the license and regulations provided that the government would consider telephone tariff adjustments in response to changes in the value of the rupiah and the need to attract further investments, Telkom actively and successfully lobbied the government to prevent rate increases.
There have been no rate increases since February, 1999; this has caused revenue on investment to be so low that it barely covers financing costs, let alone operating costs or revenue- sharing with Telkom.
* Telkom prevented AriaWest from installing new lines, while there was unmet demand for new lines in the province.
The well-documented contractual breaches, supported by evidence and records, have been denied by Telkom.
"Our decision to proceed to arbitration has not been reached lightly and only after the failure of a series of negotiations for an amicable solution to the disputes over the contractual breaches," he said.
He recalled that last September, for example, Telkom and AriaWest signed a good faith interim solution agreement to settle disputes over the contract implementation, but contractual breaches continued and, in some cases, even escalated.
According to Sriro, the International Chamber of Commerce will take about three to four months to appoint a panel of arbitrators to hear the case.
"But the whole arbitration process does not close the door for an amicable solution, provided Telkom is willing to negotiate in good faith," Sriro added.
Sriro said AriaWest understood that Telkom, which had enjoyed a monopoly over domestic telecommunications services, would put up resistance to the changes as a result of the KSOs in the five major regions.
But yet AriaWest, he added, could not understand why the government seemed to allow such flagrant breaches of a legally binding contract and why the Telkom management appeared to have condoned Telkom employees in their revolt against the KSO agreement.
Asked why the AriaWest dispute with Telkom had been more intense and controversial than those between other KSO operators and Telkom, Sriro said that it might have been caused partly by the location of the AriaWest headquarters in Bandung.
Bandung, West Java's capital city, is also the seat of Telkom's headquarters.
"But there may be other interests involved at various levels that allowed Telkom to undermine the West Java KSO," Sriro added.(vin)