Graft charges could derail Telkom-Ariawest deal

Graft charges could derail Telkom-Ariawest deal

Debbie A. Lubis, The Jakarta Post, Jakarta

Corruption allegations against a top official of PT Ariawest
International, a former partner of the state-owned
telecommunications company PT Telkom, to develop and operate
fixed telephone lines in West Java, could delay an expected deal
between the two firms in resolving a long-running dispute, a
lawyer said.

"I strongly believe this investigation suggests a desire to
seek publicity for other motives, one of which may possibly be an
attempt to frustrate the ongoing settlement negotiations between
the parties," Ariawest lawyer Todung Mulya Lubis said on Friday
at a media conference.

Reports earlier said that the Bandung prosecutor's office in
West Java had declared president of Ariawest International John
G. Voundras and another official Michael Lee Towne, suspects in a
Rp 74 billion (US$7.79 million) corruption case.

The case was filed by Telkom West Java and the Banten branch
of the workers' union.

For over a year, Telkom and Ariawest, which is 35 percent
owned by U.S.-based telecommunications firm AT&T, have been
trying to reach a solution over the troubled West Java
telecommunications project.

The dispute has put pressure on Telkom shares in the stock
market.

But earlier this month Telkom said it hoped to strike a deal
soon to buy out the AriaWest West Java assets for around $300
million as compensation for terminating the Ariawest contract to
operate fixed lines in the province.

"Actually the agreement may be signed in the fourth week of
April because in principal, some agreements have been concluded
by Telkom and AriaWest. But this allegation has become the
greatest hurdle for the settlement," Todung said.

The alleged corruption case centers on the transfer of some Rp
74 billion in funds by the two Ariawest senior officials to the
company's bank account at Chase Manhattan Bank Jakarta branch to
cover expatriate and training costs from 1996 to 1999.

According to the charges, the fund transfer was considered as
corrupt because it was executed without any receipts or other
explanatory notes.

But Todung said that the allegation was baseless.

"The corruption allegation is baseless since there was no
evidence. We have the audited financial report and joint
operation agreement. All expenses are justified," he said.

Todung also said that the prosecutor's office had generated
defamatory and insulting media reports and had carried out an
unfair investigation since his client had not been summoned
through any proper legal procedure.

He added that his law firm had sent a letter to the Attorney
General's Office to protest the improper action taken by the
prosecutor's office.

"For the sake of Indonesia's future development and ability to
attract much-needed foreign investment, we trust your office will
bring this matter under control," the letter said, a copy of
which was seen by this paper.

He also said that the Telkom board of directors did not
support the corruption charges made by the company's West Java
and Banten workers' union branches.

Meanwhile, Telkom investor relations manager Setiawan
Sulistyono said that negotiations with Ariawest were expected to
be completed soon, and hoped that they would not be derailed by
the corruption allegation issue.

Telkom shares were down to Rp 4,175 on Friday on the Jakarta
Stock Exchange, from Rp 4,225 on Thursday.