Courts overturn antitrust body's rulings

Courts overturn antitrust body's rulings

Vincent Lingga, Senior Editor, The Jakarta Post, Jakarta

The current court battle between the Business Competition
Supervisory Commission and the six business parties it ruled in
May to have conspired to rig the tender for the government's 72
percent stake in Indomobil, is a litmus test of whether the
antitrust body really has the teeth to protect the market and
business sector from unfair competition.

The alleged sham competition for the controlling ownership of
the country's second largest automobile group is the first major
case handled by the commission within the enforcement of Law
No.5/1999 on the prohibition of monopolistic practices and unfair
business competition.

The case will also be a crucial test of whether the court
system is technically competent and exceptionally honest in
judging cases involving complex, sophisticated modern business
practices.

Early indications, though, have only confirmed the public's
perception of the court system as a grossly incompetent and
corrupt institution. This can, among other things, be seen in the
quality of the decisions taken by the Central and West Jakarta
district courts that ruled in favor of the objections from three
of the six business parties that the Commission ruled were
involved in the conspiracy.

However, the court battle is not over yet as the final legal
judgment on the case will depend on the Supreme Court because the
commission has decided to appeal against the courts' rulings.

The Nov. 26 to Dec. 4, 2001 tender of PT Indmobil Sukses
International, which was ceded to the government in 1998 by the
Salim Group to settle part of its huge debts to the central bank,
were controversial from the outset, setting off a wave of
allegations of collusion and corruption.

The decision by the Indonesian Bank Restructuring Agency
(IBRA) to conduct the entire tendering process in just three
weeks, which resulted in a disastrously low price, raised a lot
of troubling questions.

Consultant PricewaterhouseCoopers (PwC) had earlier
recommended the tendering process take at least 21 weeks, given
the size and complexity of Indomobil, its subsidiaries and its
contracts with car principals overseas. But IBRA hired Deloitte &
Touche FAS as the financial adviser and speeded up the process to
a mere two steps -- final bid and due diligence -- in only three
weeks.

Obviously, only insider parties were willing to submit bids,
because other interested bidders were disadvantaged by
asymmetrical information to make a proper assessment of Indomobil
within such a short period of time.

The result was predictably a fire sale on Dec. 4, 2001 at only
Rp 625 a share for a total transaction value of Rp 625 billion,
much lower than the average Indomobil average price of Rp 735 on
the Jakarta Stock Exchange in November and way below the
government's acquisition price of Rp 2,500 per share in late
1998.

This value was much lower than its value of between Rp 850
billion and Rp 1.1 trillion, as assessed by PwC in 2001, and the
Rp 650 billion-Rp 853 billion range, as estimated by Deloitte.

It was also surprising that Indomobil's car principals
overseas and creditors did not raise any objection and appeared
comfortable, even though the winning bidder, PT Cipta Sarana Duta
Perkasa, was an unknown company set up only in December, 1998,
without any records of significant business operations.

This strengthened the suspicion that the winning consortium,
which was led by PT Trimegah Securities, consisted mainly of
businesses or investors that were insiders or at least former
business partners of the Salim family or group.

Most analysts and many IBRA officials had considered the sale
price unusually low because the economic and political situation
in late 2001 was much more stable than in 1998 and the automobile
market outlook looked much brighter.

Using its authority, as stipulated in Law No.5/1999, the
commission conducted six weeks of preliminary examinations of the
tendering process starting on Feb. 4, which were followed up with
investigations from March 19 to the end of April.

This process involved the questioning of dozens of witnesses
from business parties to government officials and the examination
of about 170 documents.

The commission, as required by law, read out its 114-page
ruling in a session opened to the public on May 30.

The investigation concluded that the three final bidders -- PT
Alpha Sekuritas Indonesia, PT Bhakti Asset Management and PT
Cipta Sarana Duta Perkasa -- had conspired in a concerted action
to determine the winner of the tender in violation of Article 22
of Law No. 5/1999.

Deloitte considered the Commission's rulings against it as
entirely irrelevant and faulty, claiming that as an adviser it
was authorized only to make recommendations and the final
decision was up to Holdiko as the seller to make.

However, closing its eyes to such egregious violations of bid
procedures, as found by the commission, did not bode well for
Deloitte's reputation and integrity.

Deloitte was expected to at least show some moral courage by
resigning from its job contract to maintain its integrity.
Forfeiting its consultancy fees could have been better for its
reputation, its most valuable asset, than being part, however
indirect, of the parties engaged in a questionable or rigged
transaction.

Yet the Indomobil case showed how the hiring of a foreign
consulting company, which is supposed to have a good
international reputation, did not automatically lend credibility
to a transaction.

There are now two opposing opinions among the business
community and analysts. One camp is worried the commission could
be overzealous to intervene in almost any questionable
transactions if it wins final legal validity for its rulings on
the Indomobil case.

Another group of businesspeople and lawyers is similarly
concerned that overturning the commission's rulings would inflict
irreparable damage to its effectiveness in enforcing the
antimonopoly and anti-unfair business competition law.

Judging the commission's decisions simply on technicality, as
the district courts did, would not resolve the key issue about
the enforcement of Law No.5/1999, especially because the rulings
appear to be solidly constructed based on well-documented
material evidence.

Any judgment by the Supreme Court on the commission's rulings
should, therefore, verify the evidence and indications of
conspiracy as outlined in the commission's ruling and answer
questions about the commission's authority to examine business
parties and about the kinds of transactions eligible to be
investigated.

Any legal verdict short of clarifying these issues will not be
able to resolve, once and for all, the controversy over the
allegedly rigged tender.

The Attorney General's Office investigations of IBRA officials
suspected of being involved in the sham competition, as
recommended by the commission in its rulings, will also help to
straighten this issue.

Evidence of conspiracy pieced together by the commission

Supporting its conclusion that concerted action was taken to
create the sham competition, the commission produced the
following evidence:

Two bidders -- Alpha and Cipta Sarana -- shared information
and knowledge for their bids and made 20 similar markups in their
bid documents. This collaboration was made possible because
Pranata Hajadi was not only an investor but also played an active
in the management of both Alpha and Cipta Sarana.

The three bidders submitted the same suggestion to Holdiko to
abolish the requirement to make an additional bid deposit of Rp
50 billion and to change the procedures for the payment of the
bid deposit.

Bhakti was actually not qualified to be a final bidder because
it signed a confidentiality agreement as a precondition to obtain
memos, procedures for the submission of the bid, the draft
conditional share purchase and loan transfer agreement just one
day before the bid's submission deadline.

Cipta Sarana, the winning bidder, was entirely unqualified to
bid because it did not sign any confidentiality agreement, never
sent any letter of interest to Holdiko and did not legally obtain
the memos, procedures for the submission of the bid, the draft
conditional share purchase and loan transfer agreement from
Holdiko.

Cipta Sarana changed the composition of its shareholders and
the boards of its directors and commissioners on Dec. 11 against
the bid's rules, which prohibited such changes within 60 days
after the Dec. 5 deadline for the submission of the bid.

Deloitte, as Holdiko's financial adviser, together with
Holdiko failed to prevent collusive tendering by allowing the
three final bidders to take part in the tender, even though they
did not meet the required procedures for the bid's submission,
thereby inflicting heavy losses to the state.

Because the government, as the seller, suffered a potential
loss of Rp 288 billion, the commission ruled that Cipta Sarana
pay a penalty of Rp 288 billion, PT Trimegah Securities (head of
the Cipta Sarana consortium) was ordered to pay Rp 10.5 billion,
Alpha Rp 1.5 billion, businessmen Pranata Hajadi and Jimmy Masrin
together Rp 10.5 billion, Bhakti Rp 1 billion, Deloitte Rp 10
billion and Holdiko Rp 5 billion.

The commission has also prohibited both Trimegah Securities
and Deloitte from being involved in the future sale of assets
held by IBRA for two years, but it stopped short of recommending
the annulment of the tender in view of its tremendous impact on
the state budget.