Did Telkom ring a wrong number?

Did Telkom ring a wrong number?

By Christiani Tumelap

BATAM, Riau (JP): Joint operation schemes (KSO) between state-
owned telecommunications company PT Telkom and five partners have
been under fire since the signing of the memorandums of
understanding (MOU) in 1995.

Much of the criticism has been leveled at the five partners:
PT Pramindo Ikat Nusantara, PT Ariawest International, PT Mitra
Global Telekomunikasi Indonesia (MGTI), PT Bukaka Singtel
International and PT Cable & Wireless Mitratel. Questions have
centered on their performance in meeting terms of their contracts
and allocation of profits to Telkom.

Indonesian Corruption Watch (ICW) recently panned the scheme,
saying it was more advantageous to the partners.

It also queried the government's decision to allow PT Telkom
to let private companies become involved in the
telecommunications business in potentially lucrative areas such
as West Java.

Telkom is mainly responsible for development and management of
telecommunications in Jakarta.

ICW also claimed the KSO partners opened their offices for
free in buildings owned by Telkom because their contracts
exempted the partners from rental fees for their office space.
Telkom, ICW estimated, could suffer at least Rp 96.3 billion
annually in lost revenue from unpaid rental fees.

The partners also have been lambasted for a perceived failure
to execute their tasks properly, particularly on installation
targets.

"KSO partners demand a bigger share of the revenue sharing
even though they have never been able to meet the installation
targets required under their first contract," a critic said.

Pramindo's vice managing director Irawan Santoso bluntly
rejected the claim.

"We are actually acting as a buffer for Telkom. We brought in
fresh funds to support Telkom's operations. We bear the
obligations generated from the huge loans, not Telkom," he told
journalists during a recent site visit to Batam, Riau, part of
Pramindo's development area of Sumatra.

Partners pay their operational costs, compensate local Telkom
employees hired to support the scheme and fulfill other
financial, investment and education responsibilities which are
part of the MOU, he said

Ariawest president John Vondras said critics of the scheme did
not grasp all it entailed.

"I don't think the people understand the purpose of the KSO.
Not many know about it, what it does and what it brings to
Telkom," he said.

Head of Telkom Division I Sumatra Agus Utoyo said the most
recognized benefit of the partnership was that Telkom was
learning to run a professional, profit-oriented business.

"Now we are thinking a lot about how to make profits out of
it, in a proper way, of course," he said.

Telkom appointed the five joint operation partners --
consortia of foreign and local firms -- to finance, build and
operate two million telephone lines in five regions of Sumatra,
West Java, Central Java and Yogyakarta, eastern Indonesia and
Kalimantan under a revenue-sharing scheme through 2010.

Ariawest is responsible for West Java, MGTI for Central Java
and Yogyakarta, Bukaka for eastern Indonesia and Cable & Wireless
for Kalimantan.

Under the 15-year agreement, the firms are required to pay
Telkom a three-monthly fixed amount known as Minimum Telkom
Revenue (MTR) and Distributable Telkom Revenue (DTR) based on
their revenue.

The agreement at first required KSO partners to install a
total of two million of new access line units (ALU) across their
work areas during a three-year construction period from 1996 to
1999.

The government revised the target to 1.2 million ALU in
September 1998 due to the economic crisis.

KSO partners claim they exceeded the installation target with
approximately 1.37 million ALU installed across the five regions
as of March 31.

Pramindo contributed 297,290 ALU, Ariawest 299,458, MGTI
403,500, Cable & Wireless Mitratel 120,000 and Bukaka Singtel
251,300.

The partners opened service to about 1.03 million new
customers in their respective regions from the start of their
operations in early 1996, when the number of Telkom subscribers
reached about 1.54 million nationwide.

During the same period, the partners made total investment of
about $1.56 billion, of which $567 million was their own equity.

The revenue-sharing scheme also was revised last year by the
government, dividing the DTR into 10 percent for Telkom and 90
percent for the partners from the previous 30 percent for Telkom
and 70 percent for partners.

Partners said they paid Telkom approximately 45 percent, or Rp
5.03 trillion, of the total revenue collected since early 1996 to
March this year.

The partners claim they have been the losers, not Telkom,
under the scheme.

In response to the partners' complaints that their contracts
were flawed and thwarted their competitive edge, the government
announced in March its proposal to convert the KSO status from a
joint operation into a joint venture in a bid for improved
efficiency.

The chairman of House Commission IV for telecommunications,
tourism and transportation, Burhanuddin Napitupulu, said a joint
venture arrangement also worked to Telkom's advantage.

"The joint venture scheme will make both Telkom and their
partners share fair and similar advantages and responsibilities."

He said the joint operation arrangement was doomed to failure
because Telkom and its partners held different perspectives and
interests, which inevitably undermined daily activities and led
to inefficiency.

Vondras conceded that one of Ariawest's problems in conducting
its business was the lack of total control over operational
matters, despite the MOU stipulation, due to frequent Telkom
intervention.

He believed the joint venture scheme could work better in
establishing cooperation.

Irawan said the success of the joint venture would hinge on
preparation by the government, Telkom and KSO shareholders.

"Looking at it from investors' point of view, the joint
venture scheme may look more attractive due to its unlimited
period of cooperation. Guarantee of project continuation is very
important," he said.

"We are basically ready (to adopt the joint venture scheme),
but it will depend on the business plan."

Burhanuddin said the government must immediately cancel the
joint operation scheme before it proceeded with the discussion on
the revision of the 1989 Communications Law, scheduled to be
delivered to the House before the June elections.

Cancellation of the partnerships, without substituting a new
arrangement, before the completion of the contract term in 2010
would force the government to pay Rp 4.2 trillion in compensation
to the partners.