KSO firms hire advisor to assess ties with Telkom

JAKARTA (JP): Joint operation partners of PT Telkom Indonesia has appointed Credit Suisse First Boston as an advisor to assess a possible change in its cooperation scheme with state telecommunications company.

Stephen R. Dowling, director and chief financial officer of Ariawest International, one of the five joint operation (KSO) partner firms, said the decision to hire an independent advisor was made following a recommendation from the government.

"The government recommended we hire an independent advisor to help finalize the proposal, which we recently presented to the government, Telkom, Indosat and some independent financial services," he said.

He said KSO partners offered five alternative for the future relationship with Telkom: continue the existing cooperation with some modifications to the existing KSO agreement; Telkom buy out all KSO partners and terminate the existing agreement; Telkom and KSO partners create a joint venture company to continue the cooperation agreement; Telkom's strategic investors buy out all KSO investors and terminate the existing agreement; or terminate the current agreement, with Telkom divesting KSO assets and liabilities into a separate entity which later would invest in a new company created by the KSO partners, the government and new investors.

Dowling said the last option would be the most feasible solution to the dispute with Telkom according to Credit Suisse First Boston.

"The option is a win-win solution in which both Telkom and KSO partners will not have to lose their investments but instead open the opportunity for new strategic investors to participate to form a stronger cooperation," he said.

The option to invite new strategic partners without having to dramatically reduce the government's stake in the new company would also be in line with the newly ratified telecommunications law which encourages the opening up of the telecommunications business sector to new local or foreign players, he added.

The KSOs partners have been criticized by many people, including Telkom officials, for their failure to meet obligations mentioned in the KSO contract. Many also feel the KSO scheme only benefits the partners.

The KSO contract was signed in 1996 with the appointment of five consortia of local and foreign firms -- PT Ariawest International, PT Pramindo Ikat Nusantara, PT Mitral Global Telekomunikasi Indonesia (MGTI), PT Cable & Wireless Mitratel and PT Bukaka Singtel (BSI) -- to finance, build and operate domestic fixed-line telephones across Indonesia under a revenue-sharing scheme through 2010. (cst)