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.